Livestock Analysis (VIP) -- February 6, 2014

February 6, 2014 08:49 AM
 

Hogs

Price action: Lean hog futures were mixed throughout the day, with February ending 5 cents lower and the April through June contracts ending 35 to 80 cents lower. Far-deferred contracts closed 10 to 75 cents higher.

Fundamental analysis: Prices were choppy amid spreading and position squaring. February hogs were firmer on improvements in the cash market, although the contract holds around a $2.50 premium to the cash index ahead of next week's expiration. Spring-month contracts saw profit-taking following recent gains, with pressure limited by uncertainty of how far-reaching the impact of PEDV has been on reducing supplies this year.

The cash hog market was as much as $2 higher today as packers work to secure supplies due to weather restricting travel this week. Early expectations are for steady to firmer bids again tomorrow, which should limit selling in futures to close out the week.

Technical analysis: April lean hog futures posted an inside day down on the daily chart. Today's low-range close gives bears the technical advantage heading into tomorrow's open, although the uptrend from the January low remains intact. Yesterday's high of $95.20 is initial resistance, with support at Monday'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 closed narrowly mixed with nearby contracts 2 1/2 to 15 cents lower and the June and later contracts unchanged to 15 cents higher.

Fundamental analysis: Front-month live cattle futures moved lower at the outset of trading but later trimmed losses as traders were reluctant to widen the discount the two contracts hold to cash prices paid last week in the Southern Plains. Yesterday's strong product movement has traders looking for signs boxed beef prices are stabilizing at a level that will rebuild demand. But this morning's trade disappointed traders as prices fell once again and movement was more restrained.

Continuing stressful winter weather has packers looking at limited available supplies and feedlots asking higher bids. But packer cutout margins have dropped back into the red, making them unwilling to increase their offers. Slaughter today totaled an estimated 111,000 head versus 117,000 head last week and 120,000 head a year ago.

Technical analysis: April live cattle futures probed support at this week's lows just under $139.00 and edged higher, closing just above $139.00 and down 2 1/2 cents from Wednesday. The Jan. 15 upside gap area from $138.05 to $138.25 serves as a downside target should this week's support break. However, the market's unwillingness to probe that gap after taking out this week's low in early trading suggests futures may continue to trend sideways for quite some time. Resistance starts at $140.00

 

Feeder cattle

Price action: Feeder cattle futures closed 7 1/2 to 25 cents higher with the exception of the September contract, which closed 12 1/2 cents lower. Futures tended to close high range.

Fundamental analysis: Feeder cattle futures were under pressure early due to higher corn futures and weakness in nearby cattle futures. Prices firmed as early losses in the nearby live cattle futures were trimmed and corn futures dipped briefly into the negative category. But the underlying tight supply situation continues to provide fundamental support on selloffs.

Technical analysis: March feeder cattle futures tested support running from the Jan. 13 low of $166.40 to $167.00. The $168.00 area provides resistance.

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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