Livestock Analysis (VIP) -- February 7, 2014

February 7, 2014 08:45 AM


Price action: Nearby lean hog futures posted a strong recovery from Monday's sharp losses to post slight gains in the February contract for the week and slight losses in the April contract. Late-spring and summer contracts posted slight to moderate gains and rose above the $100.00 level.

5-day outlook: Packers found themselves short bought this week due to winter weather and will work to secure supplies early next week, which should keep the cash market strong to start next week. USDA reports average hog weights were steady this week, but with dressed weights still 7 lbs. higher than year-ago levels, pork supplies are still ample.

30-day outlook: Traders are still trying to get a handle on the impacts of the porcine epidemic diarrhea virus (PEDV). As a result, they are adding premium into deferred-month contracts as they fear supplies will be tighter than USDA currently projects.

90-day outlook: Pork has benefited from historically high beef prices, as it offers a value to consumers. This should remain the case well into 2015 given tight cattle supplies. Expected improvements in the export market this year are also a positive for demand, especially as supplies rise seasonally the last half of the year.

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.



Price action: Live cattle futures surged around midday and ended 85 cents to $1.65 higher on the day, with nearby contracts leading gains. Today's surge helped nearby futures finish near steady with last week's close while deferred months posted week-over-week gains. Feeder cattle posted moderate gains for the day but losses for the week.

5-day outlook: Traders' attention next week will be on this week's lower cash cattle prices. Trade got started in the Corn Belt and Nebraska and Iowa at $140 to $141, which is mostly down $5 from the week prior. Feedlots in the Southern Plains are passing on bids at $140. After today's surge, futures are in line with these levels.

30-day outlook: Wholesale beef prices rose too far, too fast in January and the market is now posting an equally steep decline, searching for levels that spur strong demand. Movement has picked up this week, but it still doesn't suggest prices have dropped to a "value" level.

90-day outlook: Tight cattle supplies and the start of herd retention is expected to support the cattle market at relatively high levels throughout the year. Spring grilling demand and consumer response to record-high beef will dictate just how high prices go.

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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