Livestock Analysis (VIP) -- February 3, 2014

February 3, 2014 09:01 AM


Price action: Lean hog futures saw spillover pressure from cattle, as well as profit-taking as traders worked to narrow the premium nearbys hold to the cash index. Futures closed steady in the May contract to $1.95 lower in the April contract.

Fundamental analysis: Today's sharp pressure puts February lean hogs at just about a $2.40 premium to the cash index. That should limit followthrough pressure tomorrow as cash bids are expected to be firmer again tomorrow as packers work to secure supplies ahead of the storm that's predicted to move into the Midwest later tomorrow. Some packers raised bids as much as $2 today in order to encourage marketings.

But there are concerns sharp price pressure on beef values will translate into weakness in the pork market. But this morning, pork values were 64 cents firmer. Today's estimated livestock slaughter is 435,000 head versus 406,000 head a week earlier and 413,000 head a year ago.

Technical analysis: April lean hog futures posted a big downside day of trade on the daily chart and violated support at last week's low of $93.30 and the steep uptrend drawn off January reaction lows. Followthrough pressure tomorrow would suggest a near-term high has been posted and point to a possible test of the January low of $90.00. Resistance stands at last week's high of $94.90.

Hedgers: Carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.



Live cattle

Price action: Live cattle futures closed 22 1/2 cents to $1.30 lower with the nearby February contract leading declines. February and April futures finished near there daily lows while the summer contracts closed near their daily highs.

Fundamental analysis: Friday's Cattle Inventory Report didn't show as much heifer retention as traders expected, but the report didn't provide any shocking news. As a result, traders returned their focus to cash fundamentals. The collapse in wholesale beef prices late last week coupled with the $2 to $4 lower cash prices in the Southern Plains sent futures lower at the open. News from the wholesale trade did not improve as morning trading registered a $3.32 decline in the value of Choice beef and a $5.28 drop in the value of Select beef. Morning movement continued on the light side at just 86 loads.

Meanwhile, winter storms and arctic temperatures continue to slow movement of cattle to market. But packers, who have seen their cutting margins slide back into the red, are less aggressive on filling kill lines.

Technical analysis: Several live cattle contracts gapped lower on the open, with the nearby contracts extending losses. However, the far-deferred contracts trimmed losses, filled the gaps and closed near their highs. Next support for April live cattle is at the bottom of the Jan. 14-15 gap area at $138.05, while resistance is at Friday's high of $141.20.


Feeder cattle

Price action: Feeder cattle futures closed 35 cents to $1.42 1/2 lower with March futures leading declines. Futures closed near their lows of the day.

Fundamental analysis: Feeder cattle futures were on the defensive all day due to the declines in live cattle futures and gains in corn futures. Traders were also slightly disappointed in Friday's cattle inventory figures, which showed the rate of heifer retention for herd rebuilding is somewhat lower than expected. This boosts futures feeder cattle supplies slightly.

Technical analysis: March futures closed near the bottom of the past three-week sideways trading range. The $167.60 are provides support on the downside of the range with the $170.00 area offers resistance on the upside. Today's close matches rising support from the August/December uptrend line. If support breaks, the $166.40 area 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: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.


Back to news


Spell Check

No comments have been posted to this News Article

Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by
Brought to you by Beyer