Livestock Analysis (VIP) -- February 20, 2014

February 20, 2014 08:23 AM


Price action: Lean hog futures opened lower but finished 5 to 62 1/2 cents higher. Most contracts closed near their highs for the day.

Fundamental analysis: Lean hog futures gapped lower on the open as traders continued to take profits following the recent surge in prices. Weakness in the pork cutout value also contributed to the lower opening. But packer margins are positive and the threat of another disruption in livestock movement because of the winter storm had cash prices firm.

Futures moved higher after the gap-lower opening failed to attract follow-through selling. Futures gained momentum through the day, filling the gap and closing at their highs. This sets up a higher opening Friday. Estimated slaughter is 423,000 head today, up from last week's storm-interrupted 382,000 head and up from last year's 402,000 head.

Technical analysis: April futures gapped lower at the open but slowly gathered upward momentum throughout the trading day. The contract filled the gap and posted a near-session high close and a new contract-high close of $97.82 1/2. The $95.50 area is support.

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: February live cattle futures firmed 72 1/2 cents, while deferred futures posted modest gains for the day.

Fundamental analysis: Bullish cash cattle hopes fueled buying interest in the market again today, though traders didn't want to push the February contract much above levels where cash cattle trade is eventually expected to occur. Traders are expecting cash cattle trade to eventually be seen around $144 to $145, up from $142 to $143 last week.

Price action is likely to be relatively quiet Friday as traders wait on cash cattle trade to develop and as they even positions ahead of tomorrow afternoon's Cattle on Feed Report. The report will again show feedlot supplies below year-ago. But the "read" from the report will come from the Placements category, as there is a 11.4-percentage-point spread in the guess range.

Technical analysis: April live cattle futures are still fully bullish from a technical perspective. But the contract needs to push above the contract high at $143.20 soon to build upward momentum. Failure to do so could trigger another corrective pullback, with the Feb. 6 low at $138.65 serving as key near-term support.


Feeder cattle

Price action: Feeder cattle futures ended 5 to 65 cents lower and very near daily lows.

Fundamental analysis: Mild strength in the corn market was enough to encourage profit-taking in feeder cattle futures today. Strength in live cattle and bullish fundamentals limited price pressure. Despite tight calf supplies, traders aren't interested in pushing futures above the CME feeder cattle index.

Technical analysis: April feeder cattle futures filled Tuesday's chart gap today, which could lead to additional near-term price pressure. The next level of support is the Feb. 13 chart gap from $170.75 to $170.00. Resistance is at yesterday's contract high of $173.32 1/2.

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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