Livestock Analysis (VIP) -- February 25, 2014

February 25, 2014 08:43 AM


Price action: Lean hog futures ended 82 1/2 cents to $1.32 1/2 higher through the August contract, with far-deferred futures finishing 20 to 50 cents higher.

Fundamental analysis: Strength in the product market and concerns about the spread of PEDV provided early support for hog futures. Buy stops were triggered on the way up to extend gains. The cash hog market was steady to $1 higher as packers work to secure supplies given profitable margins (although a bit tighter than last week).

Pork cutout values firmed $1.23 yesterday but declined by 71 cents this morning, although movement improved. While pork values are historically high, they remain a value compared to beef.

Technical analysis: June lean hog futures posted a new contract high of $109.05 and posted a high-range close. While bulls clearly have the near-term technical advantage, the contract is severely overbought at near 86% according to the 9-day Relative Strength (RSI) Index. But of note, the contract has posted readings near or just above 90% two other times during the life of the contract (October and last month).

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 finished 50 cents to $1.30 higher with the expiring February leading gains. Futures finished at or near their daily highs.

Fundamental analysis: Live cattle futures opened higher and moved higher through the trading day as traders factored in rising strength in the wholesale beef market. This morning's trade saw Choice boxed beef rise by 45 cents while Select boxed beef gained $1.14. Movement was on the light side, however, at 68 loads.

Traders tended to ignore the fact packers continue to cut in the red, but the rise in wholesale prices is trimming those losses. Meanwhile showlists are larger than last week, which may give packers the advantage in cash negotiations this week. Today's estimated slaughter is pegged at 117,000 head, up from last week's 115,000 head and last year's 102,000.

Technical analysis: April futures matched their highest close posted Feb. 13 of $142.40. Futures moved higher at the $141.00 area, which is proving an area of buying support. Resistance sits at the $142.90 to $143.20 area. Support sits at $139.00 area if the $141.00 area breaks.


Feeder cattle

Price action: Feeder cattle futures finished 80 cents to $1.05 higher in very narrow trade.

Fundamental analysis: Feeder cattle futures opened higher on weakness in corn futures and firmer live cattle futures. The support from lower corn prices waned as corn futures found firmer footing but the gain in live cattle futures lifted feeder cattle futures higher.

Technical analysis: March feeder cattle futures opened higher, leaving a small upside gap in the process. Futures failed to move much higher but still finished higher than where they opened and left the upside gap open and unchallenged. This sets up the $172.00 area as resistance. The $170.00 are offers support.

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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