Livestock Analysis (VIP) -- February 5, 2013

February 5, 2013 08:40 AM
 

Hogs

Price action: Lean hog futures settled 60 to 87 1/2 cents lower in all but the February contract, which finished 25 cents higher today.

Fundamental analysis: Pressure in the cash and product markets weighed on lean hog futures today. While market-ready hog numbers should gradually ease, traders are concerned with pork demand and persistently negative packer margins. The lead-month February contract was mildly supported by the slight discount it holds to the cash index with under two weeks until contract expiration.

Cash hog bids were mostly steady today, although some softer bids surfaced as plants are opting to trim back on kills instead of pursuing hogs with higher cash bids given negative margins. Saturday's kill is expected to be down 20,000 to 30,000 head from recent weeks.

Technical analysis: Key support for April lean hog futures lies at the January triple-bottom at $86.90. A close below that level would be technically damaging and would make the September low at $84.07 1/2 the next level of strong chart support. Meanwhile, resistance stands at last week's high of $90.25.

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 ended mixed, with February and April futures firmer, June through October slightly lower and far-deferreds slightly higher.

Fundamental analysis: Nearby futures were supported throughout the day by the tightening supply picture, with additional support coming from indications the boxed beef market is in the process of confirming a near-term low has been posted. Choice beef values improved $1.26 and Select rose $1.16 this morning on solid movement. Additional boxed beef price improvement is needed, however, as packers' profit margins are deep in the red.

This week's cash cattle trade is still uncertain and packers have not yet begun actively bidding for cattle, signaling late-week trade is likely.

Technical analysis: February live cattle futures posted an inside day of trade on the daily chart and posted a low-range close. Near-term boundaries are outlined by last week's trading range of $127.00 (support) and $129.00 (resistance).

 

Feeder cattle

Price action: Feeder cattle futures saw a choppy day of trade, but softened into the close to finish steady to 37 1/2 cents lower.

Fundamental analysis: Early strength in feeder cattle futures was attributed to a softer tone in the corn market this morning, but buying eventually dried up in feeder futures and profit-taking kicked in. However, with just slight losses posted, no technical chart damage was done and traders still point to the tight supply situation as bullish for prices longer-term.

Technical analysis: Near-term boundaries for March feeder cattle futures are resistance at last week's high of $150.45 and support at the contract low of $144.65.

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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