Livestock Analysis (VIP) -- February 28, 2013

February 28, 2013 08:48 AM
 

 

Hogs

Price action: Lean hog futures finished steady to 37 1/2 cents higher, which was a mid- to upper range close.

Fundamental analysis: Lean hog futures favored the upside throughout today's session amid light short-covering as the market tries to rebound from heavily oversold conditions. Buying interest in the lead-month contract was limited, however, by pressure on the cash market. While there are some expectations the cash market will firm next week given stronger packer margins, traders are hesitant to push April futures above the cash index.

Cash hog bids were steady to weaker again today. Packers have a small Saturday kill planned as inclement weather slowed hog movement this week. Given strong margins, demand for cash hogs should improve next week. But whether that's enough to boost cash hog bids is yet to be seen as cash sources signal many plants are bought ahead on slaughter needs and improved road conditions should increase the number of hogs coming to town.

Technical analysis: April lean hog futures dipped below initial support at Monday's low, but didn't find active selling at that level. The heavily oversold condition of the contract should limit near-term selling interest, but consecutive higher closes above the downtrend from the February highs are needed to spark chart-based buying. That trendline intersects at $80.94 Friday.

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 enjoyed light followthrough most of the day, but futures softened into the close to finish narrowly mixed. The February contract expired 55 cents lower at $128.00 today.

Fundamental analysis: Most expect firmer cash cattle trade this week as the boxed beef market is thought to have put in a seasonal low and already lower showlist estimates were likely made even tighter by the winter storm in the Southern and Central Plains this week. But futures are already well above last week's $123 to $125 cash cattle trade, opening the door for some light profit-taking late in today's session.

In addition, there is some concern about how the furlough of meat inspectors will play out as it appears sequester will likely occur tomorrow.

Technical analysis: April live cattle futures saw an inside day of trade and settled low-range, which should give bears the advantage tomorrow. Support is layered from the psychological 129.00 mark to last week's low of $127.50. Resistance remains at the Feb. 15 high of $130.55.

 

Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and ended with gains of 30 to 55 cents for the day.

Fundamental analysis: Feeder cattle traders engaged in corrective short-covering to wrap up February as traders view the downside as overdone -- especially considering expectations for supplies to tighten going forward. Improvement in the beef market and expected gains in the cash market are supportive of ideas demand for feeder cattle will also improve. Strength in the corn market and the U.S. dollar index limited gains, however.

Technical analysis: April feeder cattle futures posted another day of gains, but the contract has a ways to go to signal it has put in a low. To do so, it must post closes above the January double-bottom low of $147.25. Strong support remains at Tuesday'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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