Livestock Analysis (VIP) -- February 6, 2013

February 6, 2013 08:49 AM
 

Hogs

Price action: Lean hog futures sank into the close to finish $1.25 to $1.65 lower. The low-range close will give bears momentum tomorrow morning.

Fundamental analysis: Yesterday's sharp drop in pork cutout values weighed on lean hog futures today as it raises concerns about pork demand and packers' profit margins. Packers responded to deep-in-the-red margins by trimming cash bids and daily kill requirements. However, cash sources note a tightening of market-ready supplies could limit further pressure on the cash market, especially since packers are short bought.

Traders will be gauging the pork market closely in the coming days to see if the market is near a low. If prices continue to slide, it would signal demand has softened.

Technical analysis: February lean hog futures posted a big downside day of trade on the daily chart after posting a fresh contract high of $88.40 yesterday, which now serves as resistance. Support lies at the July high of $86.20, followed by the January low of $84.15.

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 got off to a choppy start but quickly softened and remained under pressure throughout the day. Futures ended 35 cents to 92 1/2 cents lower for the day, which was a low-range close.

Fundamental analysis: The boxed beef market set back today after posting strong gains to start the week. While this morning's choppy boxed beef prices do not necessarily call into question whether the beef market has put in a low, this did add a bit of uncertainty. Thus, traders took advantage of dollar strength by booking some profits.

Adding to the negative tone is the fact that futures are several dollars above last week's $125 trade on the Plains. While at least steady trade is expected this week, futures' premium means near-term upside potential is likely limited.

Technical analysis: February live cattle futures settled near support at the bottom of the market's recent choppy trading range at $127.00. A move through this level would open downside risk to the January low of $124.85. Near-term resistance remains at last week's high of $129.00.

 

 

Feeder cattle

Price action: Feeder cattle futures settled near session lows with losses of 97 1/2 cents to $1.30.

Fundamental analysis: Strength in the U.S. dollar index today encouraged followthrough selling in feeder cattle futures. Technical selling picked up as the market moved through near-term levels of support. Spillover from lean hogs and live cattle added light pressure. And even after today's losses, nearby contracts remain at a premium to the cash index.

Technical analysis: March feeder cattle futures fell just short of closing the Jan. 23 to Jan. 24 upside chart gap at $147.17 1/2, leaving it as near-term support. A move through this level would open downside risk to the contract low of $144.65. The psychological $150.00 levels is near-term resistance.

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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