Livestock Analysis (VIP) -- February 21, 2013

February 21, 2013 09:08 AM
 

Hogs

Price action: Lean hog futures finished near session lows with losses of 30 to 90 cents.

Fundamental analysis: Despite the sharply oversold condition of the market, lean hog futures were pressured throughout the day due to demand concerns and weakness in the cash market. Traders are concerned that pork exports will suffer due to Russia and China saying they want U.S. shipments to be certified ractocamine-free, although Smithfield says it can comply (see "Evening Report" for more).

The cash hog market was steady to $1 lower again today, but the good news is packer margins have finally returned to the black. Early expectations are for weaker bids again tomorrow despite the expected snow storm that's moving across the western Corn Belt, as packers say they have secured needs ahead of the storm.

Technical analysis: April lean hog futures are posting a reading of 13.6% on the 9-day Relative Strength Index. A reading of 30% or below suggests a time or price correction is due. This signals further downside risk should be limited. Bears' next target the May low of $79.50. Futures need to fill in the gap created by Monday's lower start to suggest a near-term low has been posted. The top of the gap stands at $85.76.

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

Feed needs: Profits have been claimed on 1st-qtr. feed coverage that was held in March corn and meal futures. 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4 and 25% of 2nd-qtr. protein needs are covered in long July soymeal futures at $388.00.

 

Live cattle

Price action: Live cattle futures settled 10 to 47 1/2 cents lower, with the exception being the front-month February contract that closed 20 cents higher and the April 2014 contract that closed 5 cents higher.

Fundamental analysis: Futures were pressured by negative outside markets and concerns about demand. Sharp strength in the dollar index and weakness in the stock market resulted in a risk-off trading atmosphere in the commodity world today.

Moderate cash cattle trade has been reported this week at $123, which is steady with week-ago. In order to secure a near-term low, boxed beef prices must firm on strong movement. While beef movement has improved this week, it's been accompanied by choppy-to-lower price action.

Technical analysis: April live cattle posted an inside day down on the daily chart, remaining within the lower third of yesterday's trading range. The contract ended the day hovering just above support at this week's low of $127.50. Key support lies at the April low of $125.90.

 

Feeder cattle

Price action: Feeder cattle futures ended 2 1/2 to 50 cents lower to post a low-range close.

Fundamental analysis: Futures were pressured by spillover from live cattle and were unable to generate support from weakness in the corn market. But ideas recent losses have been overdone helped limit selling interest.

Technical analysis: March feeder cattle futures traded in the lower half of yesterday's trading range to avoid doing any more technical chart damage Contract-low support lies at $139.50, with resistance at this week's high of $143.65.

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: Profits have been claimed on 1st-qtr. feed coverage that was held in March corn and meal futures. 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4 and 25% of 2nd-qtr. protein needs are covered in long July soymeal futures at $388.00.

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