Livestock Analysis (VIP) -- February 19, 2013

February 19, 2013 08:53 AM
 

Hogs

Price action: Lean hog futures sank into the close to finish 50 cents to $1.20 lower, with the front-month contract leading losses.

Fundamental analysis: Early pressure came on concerns about the cash hog market, as packers are focused on improving their deep-in-the-red profit margins. Cash bids were mostly $1 lower again today and more of the same is expected tomorrow. Later in the week, a winter storm is forecast to move across the Midwest and disrupt marketings, but packers say they are working to secure needs early in the week.

April lean hog futures widened its discount to the cash index to around $3.50, which is most recently projected down $1.14 to stand at $86.59. This signals traders have a bearish attitude toward the cash market over the near-term as the pork market searches for a price that encourages demand improvement.

Technical analysis: April lean hog futures are approaching support at the 75% retracement level of the rally from the May low to the November high. Violation of this support -- at $82.82 -- would make the May low of $79.50 bears' next target. Futures need to fill the Feb. 13 gap at $85.75 to signal a near-term low is in the works. The contract is also severely oversold according to the 9-day Relative Strength Index, which suggests the downside is overdone.

Hedgers: Carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. Corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. Protein needs are covered in long July soybean meal futures at $388.00.

 

 

Live cattle

Price action: Live cattle futures closed mixed to mostly lower and anywhere from low- to high-range for the day.

Fundamental analysis: Live cattle futures were pressured today by the premium they hold to the cash market, especially given traders expect no better than steady cash cattle prices compared with last week's mostly $123 trade in the Plains. Demand concerns also continue to hang over the market as the boxed beef market is struggling to find a bottom, although the product market was strong this morning. But selling interest was limited by inclement weather that is forecast for the Plains and western Midwest this week. Ideas the downside has been overdone also helped limit selling interest.

Active cash cattle trade is not likely until Friday as packer demand is expected to be limited, while feedlots have hopes of getting steady to firmer prices for this week's supplies. Bids have not yet been established.

Technical analysis: The downtrend from the January swing highs remains intact for April live cattle futures. That resistance must be cleared before there are indications of a short-term low. The trendline intersects around $130.64 Wednesday.

 

Feeder cattle

Price action: Feeder cattle settled 20 to 70 points lower, which was mid- to high-range.

Fundamental analysis: Feeder cattle futures were pressured by a lack of buying interest in live cattle today and falling cash feeder cattle prices. Pressure on the corn market helped keep losses in check, but wasn't enough to spur fresh buying interest.

Technical analysis: April feeder cattle futures remain in the downtrend from the January highs. That trendline, which intersects around $150.25 Wednesday, must be cleared before there are signs of a short-term low. Contract-low support lies at $143.30.

Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now, but feeder cattle buyers should stay in touch to establish long coverage.

Feed needs: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. Corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. Protein needs are covered in long July soybean meal futures at $388.00.

 

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