Livestock Analysis (VIP) -- February 4, 2014

February 4, 2014 08:53 AM


Price action: Lean hog futures finished 2 1/2 to 50 cents higher with the exception of the May contract, which closed 97 1/2 cents lower. Futures traded in a narrow range and closed basically mid-range today.

Fundamental analysis: Lean hog futures traded quietly in a mostly narrow range on corrective short-covering. Futures found support from firmer cash hog bids as packers pushed to line up supplies ahead of potential disruptions to hog runs and slaughter schedules due to the winter storming moving across the nation's midsection.

Today's wholesale pork trade also proved supportive as the pork cutout rose 39 cents in morning trade, but movement was on the light side at 175.27 loads. Today's estimated slaughter is 430,000 head compared to 407,000 head last week and 423,000 a year ago, signaling market-ready supplies are still plentiful.

Technical analysis: April lean hog futures closed on the steep uptrend line drawn from the January low through yesterday's low. Yesterday's low of $92.80 is the first level of support with the upside gap area from $90.90 to $91.40 left Jan. 15 the next downside target if that support is broken. Last week's low at $93.30 is the first level of resistance with tougher resistance 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 saw a choppy day of trade, but the market ended low-range with losses of 50 to 77 1/2 cents through the April contract. Farther deferred months finished narrowly mixed with a downside bias.

Fundamental analysis: Live cattle futures faced pressure from the recent decline in boxed beef prices along with ideas cash cattle prices will pull back again this week. However, Choice and Select boxed beef cuts did firm $1.24 and 89 cents, respectively, this morning, though movement was again light, signaling prices have not yet found levels that spur strong demand.

Also, showlist estimates are significantly lower this week and a winter storm event in the Plains and Midwest along with cold temps could slow cattle weight gain and limit transportation. Futures are well below last week's cash prices of $144 to $145.

Technical analysis: April live cattle futures appear headed for a test support at the Jan. 15 upside gap area from $138.25 to $138.05. Former support at last week's low of $139.47 1/2 is now resistance, followed by the $140.00 mark.


Feeder cattle

Price action: Feeder cattle futures faced pressure for much of the day and ended 30 cents to $1.02 1/2 lower on the day, with nearby contracts leading the decline.

Fundamental analysis: Strength in the corn market as well as the U.S. dollar index set the stage for yet another downside day of trade in the feeder cattle market. The front-month contract is now at a $4 discount to the cash index. But since the index has declined over the past week and there are many weeks remaining before the March contract expires, traders are not overly concerned about narrowing the gap at this time.

Technical analysis: The market took out and settled below uptrending support drawn off the lows since November, turning that level into resistance -- it intersects around $161.21 tomorrow. Near-term support for March feeder cattle futures stands at the 2014 low of $166.40.

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.

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