Livestock Analysis (VIP) -- February 21, 2014

February 21, 2014 08:46 AM


Price action: Lean hog futures closed at or near their highs of the day, finishing up to $1.52 1/2 higher, led by the lead April contract. In addition, April futures left its opening gap unfilled. Futures closed sharply higher versus a week ago.

5-day outlook: Storm disruptions have cut into available supplies. Pork cutout values have risen and packer cutout margins are positive. That combination should result in stronger cash prices next week. The gap-higher opening with a finish on daily highs by the April futures contract suggests followthrough buying in futures when trading starts up again next week. The wild card is how traders react to the Cold Storage Report, which showed pork stocks higher than expected.

30-day outlook: Seasonal trends suggest steady to higher prices over the next month. With wholesale beef prices again rising, retailers may turn to pork for more features, boosting demand. But the eventual return to more moderate weather will bring a return to more normal flow of supplies, which could eventually pressure prices. But as long as packers continue to cut in the black, setbacks in cash prices will be moderate.

90-day outlook: USDA looks for total pork production to rise 1% this year although they project total slaughter numbers to edge lower due to the pig loss from PEDV. The higher production comes on heftier weights. Summer hog futures have already priced in strong summer prices. Be prepared to pull the trigger on hog hedges, but wait for confirmation of a top before making that move.

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.




Price action: Live cattle futures saw some profit-taking today, but still posted gains for the week. February futures posted an all-time high of $145.05 today. Feeder futures also saw some profit-taking, but closed slightly higher on a weekly basis.

5-day outlook: Futures were supported this week by strength in the beef market, as Choice values gained more than half of the previous week's losses back. Additionally, beef movement picked up and market-ready supplies were tighter, which forced packers to raise bids. Cash trade began in Kansas and Texas this morning between $144 and $145, which is up $2 to $3 from last week.

30-day outlook: This afternoon's Cattle on Feed Report is slightly negative as it showed On Feed and Placements above expectations, while Marketings were slightly below the average guess. The aggressive pace of feeders moving into lots comes as producers work to take advantage of historically high prices. With heavyweight placements coming in above year-ago, traders will be looking for slaughter numbers to rise over the next quarter.

90-day outlook: Year-to-date beef production the week ended Feb. 22 was 8% below the same period last year. USDA projects beef production to be down 5% in 2014, with the first quarter’s production expected to be the smallest of the year. As a result, a slight build in supplies during the second quarter could result in a turnback in price, depending on how aggressively retailers buy ahead of grilling season.

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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