Livestock Analysis (VIP) -- February 27, 2013

February 27, 2013 08:45 AM
 

Hogs

Price action: Lean hog futures closed 7 1/2 to 57 1/2 cents lower in all but the July and August contracts, which were 20 and 30 cents higher, respectively.

Fundamental analysis: While there was a little short-covering interest today amid ideas the downside is overdone, buying interest continues to be limited by demand concerns and weakness in the cash hog market. Until the fundamental concerns are eased, the upside is limited to short bouts of modest corrective buying.

Cash hog bids were steady to weaker across the Midwest again today. While packers have seen margins dramatically improve and they are now cutting solidly in the black, expectations are Saturday's kill will be light as inclement weather has slowed hog movement. But cash sources are anticipating better demand for cash hogs next week if margins stay positive.

Technical analysis: April lean hog futures remain heavily oversold with the 9-day Relative Strength Index at 13.24, suggesting a time or price correction is overdue. The contract has been oversold for nearly two weeks, however, signaling traders aren't concerned. As a result, a near-term test of contract-low support at $79.50 is possible.

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 were supported throughout the day by evidence the boxed beef market has posted a near-term low, giving traders more confidence to reestablish long positions. February cattle closed $1.27 1/2 higher, with the rest of the market steady to 57 1/2 cents higher.

Fundamental analysis: Boxed beef prices followed up yesterday's strong gains with an 82-cent gain in Choice values this morning and a $2.03 gain in Select values to greatly narrow the Choice-Select spread to just 73 cents premium Choice. Movement this morning was also strong at 134 loads. Traders will be keeping a very close eye on the beef market for confirmation a seasonal low has been posted.

Packers remain hesitant to offer cash bids, which suggests cash trade will be delayed until Friday. Many producers are still working to clean up after the major snow event on the Plains. This week's showlist is down from last week, which combined with strength in the beef market points to at least steady cash cattle trade.

Technical analysis: April live cattle posted an upside day of trade on the daily chart and have posted around a $2 rally from last week's low. Futures have nearly completed a 25% retracement of the decline from the December high to the February low, but the contract needs to complete a 38% retracement -- at $131.51 -- to confirm a low is in place.

 

Feeder cattle

Price action: Feeder cattle futures enjoyed spillover from live cattle and a benefited from a mostly weaker tone in the corn market. Feeders closed 15 to 35 cents higher.

Fundamental analysis: Buying in feeder cattle futures was limited to short-covering as calf demand remains lackluster due to still-historically-high corn prices and uncertainty as to whether drought in the Plains will continue to improve.

Technical analysis: April feeder cattle futures didn't stray too far from unchanged today and ended mid-range. The contract needs to fill the early February gap at $149.90 to suggest a low is in place. Support lies at yesterday's contract low of $142.27 1/2.

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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