Livestock Analysis (VIP) -- February 4, 2013

February 4, 2013 08:36 AM
 

Hogs

Price action: Lean hog futures saw two-sided trade today and ended mixed, with the February contract up 42 1/2 cents, April through August futures down 32 1/2 to 90 cents and far-deferred months slightly higher.

Fundamental analysis: Packers paid steady to higher prices for cash hogs today as they are in need of supplies after weather disrupted transportation in the Midwest last week. But with packers still dealing with deeply negative cutting margins limited the bullish influence of this cash strength. Plus, nearby futures are trading near in line with the cash hog index.

The pork cutout value did firm Friday, but as the market has struggled to put together consecutive days of gains, resulting in negative cutting margins. As a result, much more improvement is needed.

Technical analysis: April lean hogs staged a downside breakout of their recent trading range and closed the Jan. 24 upside chart gap. The next level of key chart support is the January triple-bottom of $86.90. The top of that gap at $89.00 is now resistance.

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

Feed needs: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. protein needs are covered in long July soybean meal futures at $388.00.

 

 

Live cattle

Price action: Live cattle futures settled 20 to 45 cents higher in all but the February contract, which finished 2 1/2 cents lower. Most contracts ended just off session lows.

Fundamental analysis: Cattle futures were supported by last Friday's Cattle Inventory Report. But support was limited as traders were widely anticipating bullish data. A sluggish boxed beef market also limited buying interest, especially in the lead-month contract, as the product market is struggling to find a short-term low. And until that happen, traders will be reluctant buyers.

Cash cattle trade is very much uncertain for the week at this stage. While cattle prices should trend higher as the year progresses, traders are concerned highly negative cutting margins have traders concerned beef plants will cut kill hours instead of actively bidding for animals. In fact, some of this is already occurring.

Technical analysis: After a big move up last Monday, April live cattle futures have settled into a consolidation range. Key near-term resistance stands at last Monday's high of $133.65. Gap support extends from $131.95 to $131.25.

 

Feeder cattle

Price action: Feeder cattle futures closed slightly higher in all but the March contract, which ended 32 1/2 cents lower.

Fundamental analysis: Feeder cattle futures were supported by last Friday's Cattle Inventory Report, as the 2012 calf crop was even smaller than expected. That points to even tighter supplies available to move into feedlots. A softer tone in the corn market this afternoon also helped support feeders. But muted buying interest in live cattle limited the upside.

Technical analysis: March feeder cattle are settling back into the the old sideways range after a failed upside breakout in December and a failed downside breakout in January. The "comfort zone" for the contract seems to be from roughly $147 to $154.

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: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. Corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. Protein needs are covered in long July soybean meal futures at $388.00.

 

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