Livestock Analysis (VIP) -- February 19, 2014

February 19, 2014 08:59 AM



Price action: Lean hog futures finished higher with the exception of the April contract, which dropped 17 1/2 cents. The May through July contracts posted slight gains, while moderate gains were posted in far-deferred contracts.

Fundamental analysis: April lean hog futures were limited today by the nearly $10 premium the contract holds to the cash market. While traders expect seasonal cash strength, they already have that built into the lead-month contract.

Deferred futures were supported by ongoing concerns that porcine epidemic diarrhea virus (PEDV) will trim production from previously expected levels. Because this is already factored into summer-month contracts, they didn't gain as much today. But traders are starting to factor PEDV losses into farther-deferred contracts.

Cash hog bids were as much as $3 higher today as packers try to beat the impending winter storm in getting animals bought.

Technical analysis: April lean hog futures posted a new contract high today before fading to a slightly lower close. With the contract trading at its lifetime high and overbought according to the 9-day Relative Strength Index, there is risk of a top. But the contract has flashed no signs of such yet.

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

Feed needs: Profits on the 1st-qtr. meal hedges have been claimed. Carry all corn-for-feed and meal risk in the cash market for now.

Live cattle

Price action: Live cattle futures closed slightly lower in all but the expiring February contract. The April and later contracts finished 30 to 87 1/2 cents lower with the December contract leading declines. Futures closed low range.

Fundamental analysis: Nearby futures traded higher through much of the session on expectations of steady to higher cash prices this week. Deferred futures were weaker on profit taking following the recent strong run up. Supporting the firmer nearby contract was the stronger wholesale beef price, which saw Choice and Select values rising 86 cents and 73 cents, respectively. The higher prices came on decent movement. Concerns tomorrow's storm will restrict supplies also contributed to the gains.

Today's estimated slaughter is 116,000 head versus 113,000 head week ago and 121,000 a year ago.

Technical analysis: April live cattle futures posted an outside day and close in the lower third of today's trade. That hints at a lower opening tomorrow. However, today's low touched the steep February uptrend line and moved higher, a positive sign. The $140.75 area offers support along with support from the late-December/February uptrend line just under $140.00.


Feeder cattle

Price action: Feeder cattle futures 17 1/2 to 75 cents lower and near their daily lows.

Fundamental analysis: Feeder cattle futures opened weaker on profit-taking due to the stronger U.S. dollar index, higher interest rate futures and weaker deferred live cattle futures. Futures edged lower as corn and wheat futures found their footing and moved higher.

Technical analysis: March feeder cattle futures slumped and closed at their lows for the day. The decline filled most of the gap left on Tuesday. However, the steep February uptrend line remains unbroken. The upside gap from $169.00 to $169.80 left on Feb.13 is the next downside objective. The $169.00 area is the top of a strong support zone ranging down to $167.00.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering remaining 1st-qtr. and 50% of 2nd-qtr. marketings and are short the same number of April $144.00 call options at $1.525.

Feed needs: Profits on the 1st-qtr. meal hedges have been claimed. Carry all corn-for-feed and meal risk in the cash market for now.


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