Livestock Analysis (VIP) -- February 7, 2013

February 7, 2013 08:48 AM
 

 

Hogs

Price action: Lean hog futures were under pressure most of the day, but the market staged a late rally to settle narrowly mixed with nearbys favoring the upside.

Fundamental analysis: Lean hog futures faced pressure much of the day due to another steep decline in the pork cutout market yesterday, which pulled packer profit margins even deeper into the red. But limited market-ready hog supplies and the fact that some packers were short-bought for near-term needs resulted in some firmer cash hog bids today, though other locations paid steady to lower prices. This gave lean hog futures a lift into the close.

Nearby futures also benefited from the $3-plus discount they hold to the cash hog index.

Technical analysis: Near-term support is layered from the Jan. 25 low of $86.62 1/2 to the bottom of the wide January upside gap at $86.00 for February lean hogs. Tuesday's contract high of $88.40 is strong resistance.

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 opened under pressure, but futures improved as the day progressed to end split with February and April futures 30 and 7 1/2 cents higher, respectively, while deferred months posted losses of 27 1/2 to 52 1/2 cents.

Fundamental analysis: Action in the cattle market was choppy today as traders lacked near-term direction. Cash cattle trade has yet to get underway and choppy boxed beef action this morning and yesterday has raised some questions about whether feedlots will get firmer prices compared with last week's $125 on the Southern Plains. Sharp gains in the U.S. dollar index also limited buying interest today.

Technical analysis: February live cattle futures touched but bounced off support at the bottom of the wide January upside gap of $126.97 1/2, marking it as strong support. The high-range close will give bulls the near-term advantage to start the next session. They will be targeting this week's high of $128.15, followed by last week's high of $129.00.

 

Feeder cattle

Price action: Feeder cattle futures settled in the upper half of today's trading range with losses of 35 to 67 1/2 cents.

Fundamental analysis: Strength in the U.S. dollar index and the fact that March futures remain at a slight premium to the cash index led to followthrough selling in the feeder cattle market today. Pressure on corn and late improvement in the live cattle and lean hog markets did help the market to move well off its lows into the close, however.

Technical analysis: March feeder cattle futures remain within the contract's recent downtrend toward the contract low of $144.65. The contract is nearing an overbought level according to the 9-day Relative Strength Index, however. A corrective bounce would have bulls targeting resistance layered every buck higher from $148.00 to $150.00.

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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