Livestock Analysis (VIP) -- February 22, 2013

February 22, 2013 09:16 AM
 

Hogs

Price action: Lean hog futures closed 57 1/2 to 77 1/2 cents lower in all but the May contract which was steady today. Lean hog futures sharply extended the recent price plunge this week.

5-day outlook: Until demand concerns ease, lean hog futures face more downside price risk. With that said, the market is heavily oversold, suggesting a corrective bounce (or at least a pause) is needed. But the upside is limited to short-covering without positive demand news.

30-day outlook: The first step in building confidence on the demand side will come from the pork product market. If packers are able to move product at higher prices, it will signal the market has found "value."

90-day outlook: At its Ag Outlook Forum, USDA projected pork output will rise 0.7% in 2013 with cash hog prices at $61 to $65. Not surprisingly, that's right in line with what USDA forecast in its February Supply & Demand Report. The key to the long-term outlook for the hog market is demand.

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.

 

 

Cattle

Price action: Live and feeder cattle futures saw a round of short-covering today, but still posted losses for the week. Concerns that federal meat inspectors will be off the job beginning March 1 due to potential furloughs raised concerns about demand

5-day outlook: Futures should see bull spreading Monday as this afternoon's Cattle on Feed Report showed On Feed at 94%, Placements at 102% and Marketings at 106% of year-ago levels. The feedlot inventory continues to shrink, while feedlots are doing a very good job of marketing their animals.

30-day outlook: But traders are not currently focused on the supply situation. Instead, they are focused on demand, which is struggling. Consumers are showing resistance to higher prices and export demand has softened. However, the latest weekly export sales data showed an increase from the previous week with Japan the lead buyer. If Japanese purchases of U.S. beef continue to improve, it would help the beef market to secure a near-term low.

90-day outlook: With the drought ongoing in the Central and Southern Plains, producers are not building herds. The latest Cattle Inventory Report showed some heifer retention -- but largely outside of the Plains.

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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