Livestock Analysis (VIP) -- February 5, 2014

February 5, 2014 08:36 AM
 

Hogs

Price action: Lean hog futures gapped higher on the open and extended these gains as the day progressed. Futures ended $1.22 1/2 to $1.87 1/2 higher through the August contract, with far deferred months seeing slightly lighter gains. This was good for a high-range close.

Fundamental analysis: Lean hog futures received an early boost from strong gains in the product market yesterday -- both in terms of movement and prices -- as well as another day of steady to higher cash hog bids due to unfavorable winter weather. The market also benefited from a decline in average hog weights over the past week, which reminds supplies will tighten going forward. However for now, supplies remain well above year-ago levels.

Buying accelerated as futures broke through near-term resistance levels. A weaker U.S. dollar index also favored market bulls for much of the day.

Technical analysis: April lean hogs penetrated and closed above resistance at last week's high of $94.90, turning that level into support. This opens upside potential to the contract high of $96.45. Support lies at this week's low of $92.80.

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 were choppy today and ended mixed, with nearbys 10 to 20 cents higher and deferreds steady to 17 1/2 cents lower.

Fundamental analysis: Following recent sharp losses, futures stabilized today as traders reevaluated positions. Pressure was limited by tight supplies, but concerns about weakness in the beef market limited buying. Choice values fell another $3.63 this morning and Select declined $2.03. But the good news is movement improved this morning, which signals prices are stimulating demand.

Another day of choppy trade is possible tomorrow as traders wait on cash trade to develop. Early expectations are for steady to weaker cash prices compared with last week's $144 to $145 trade. Traders also recognize the February contract holds a sizable discount to last week's cash trade, which also limited price pressure.

Technical analysis: April live cattle posted an inside day of trade on the daily chart. The low-range close, however, signals bears have more momentum heading into tomorrow's open. Closes below the 38% retracement (near $139.00) of the rally from the November low to the January high would make bears' next target the halfway point of the trading range at $137.70. Initial resistance is at last week's high of $141.20.

 

Feeder cattle

Price action: Feeder futures softened into the close, with March ending 5 cents lower and the rest of the market ending 15 to 30 cents higher.

Fundamental analysis: The low-range close gives bears more momentum heading into tomorrow's open, although pressure should be limited by tight calf supplies. Recent price improvement in the corn market has weighed on feeder futures, but there's limited risk of sharp downside risk for nearbys as the March contract ended the day at around a $3 discount to the cash index, which stands at $170.50.

Technical analysis: March feeder futures inched below support at yesterday's low to post a weekly low of $166.90. Below that level, support is at the January low of $166.40. Resistance begins at last week's high of $169.72 1/2 and extends to the contract high of $170.67 1/2.

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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