Livestock Analysis (VIP) -- February 27, 2014

February 27, 2014 09:08 AM


Live cattle

Price action: Live cattle futures were a mixed bag today. While the front-month gapped higher on the open and ended mid-range with gains of $1.40, deferred months erased early gains and ended mid- to low-range with slight losses in all but far deferred contracts.

Fundamental analysis: The February live cattle contract surged to another contract high of $150.65 as traders worked to bring it in line with yesterday's cash cattle trade at $150 on the Southern Plains and $152 in Nebraska. Higher cash prices were spurred by ongoing strength in boxed beef prices and recently improved movement. In addition, bitter cold this winter and many winter storm events (more are expected early next week) have added stress to animals.

But a lack of urgency to bring the April contract in line with the February contract before it goes off the board tomorrow signals traders do not anticipate sustained cash cattle trade above $150.

Technical analysis: April live cattle hit a new contract high of $145.97 1/2 today, but settled near session lows as this triggered profit-taking. Today's high to $146.00 marks resistance, while yesterday's gap from $143.30 to $142.60 marks support.


Feeder cattle

Price action: Feeder cattle futures got off to a firmer start, but this gave way to profit-taking and the market finished 17 1/2 to 52 1/2 cents lower on the day for a mid- to low-range close.

Fundamental analysis: Feeder cattle futures were initially lifted by strong gains in the live cattle market, but the move to new contract highs triggered some mild profit-taking. The premium the front-month holds to the cash index added light pressure. But despite today's pullback, the technical posture of the market clearly favors market bulls.

Technical analysis: April feeder cattle futures took out near-term resistance at both $174 and $174.50 early in today's session, but the contract settled back below these levels. Today's contract high of $174.70 is near-term resistance. Support stands in the $172.50 area.

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: Carry all corn-for-feed and meal risk in the cash market for now, but be prepared to extend coverage on a price break.


Price action: April lean hogs gapped sharply higher on the open and traded as much as its $3.00 limit higher today before ending with gains of $2.82 1/2. May through August futures ended near session highs with gains of $1.15 to $1.57 1/2. Deferred contracts saw light gains.

Fundamental analysis: Lean hog futures enjoyed strong followthrough buys today thanks to still-supportive fundamentals, spillover from live cattle and technical buying. The pork cutout value continued its rise this morning and moved above the $100 per cwt. mark. But even at these levels, pork values are still a value relative to beef. This added incentive for packers to pay steady to higher prices for cash hogs. Cold temps are artificially tightening supplies and producers and packers are preparing for another blast of winter weather.

In addition, the obvious uptrend of the market along with the gap higher start for nearby contracts supported futures. Losses in the U.S. dollar index today were also favorable.

Technical analysis: April lean hogs gapped higher on the open and traded all the way up to a new contract high of $104.02 1/2. Profit-taking ensued on the move through $104.00. However, and the contract ended 15 cents below that price, leaving it as near-term resistance. Today's wide gap from $101.57 1/2 to $103.07 1/2 is initial support, followed by the $100.00 mark. Increasing gaps and the oversold condition of the market may signal a top is near.

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.


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