Livestock Analysis (VIP) -- February 8, 2013

February 8, 2013 08:38 AM
 

Hogs

Price action: After posting a contract high earlier in the week, February lean hog futures set back on profit-taking and concerns about packers' negative profit margins. But the contract, which expires next week, ended the week at more than a $4 discount to the cash index. April lean hog futures moved to their lowest level since late September on late-week profit-taking.

5-day outlook: The April contract, which also holds a sharp discount to the cash index, will soon have the responsibility of tracking cash prices more closely. As a result, traders could return on Monday and view this week's losses as overdone. But if the pork cutout market continues to soften, it will be difficult to shore up much support for lean hog futures.

30-day outlook: USDA lowered its 2013 pork export forecast from last month due to concerns that Russia's trade restrictions will not be completely offset by gains by other countries. Key to the pork cutout market finding a near-term low is improved demand.

90-day outlook: Pork production is expected to be higher the last three quarters of 2013 compared to 2012, peaking in the last quarter of the year and possibility testing capacity. As a result, it's key for packers to improve profit margins, which are currently in the red and limiting demand for hogs.

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.

 

 

Cattle

Price action: Live cattle futures got off to a choppy start, but the market softened ahead of midday and ended $1.10 to $1.40 lower, which was at or near session lows. Feeder cattle futures plummeted to end $2.20 to $2.62 1/2 lower. Most live and feeder cattle contracts ended with sharp losses for the week.

5-day outlook: Cash cattle trade got started at $125 today, steady with last week, after the boxed beef market faltered around midweek. Until the boxed beef market puts in a definitive low, upside potential for both cash and futures will be limited.

30-day outlook: Japan recently decided to relax its beef import restrictions to cattle aged under 30 months and hurdles regarding implementation of the new rule were moved through relatively quickly. Thus, U.S. beef is now ready to be shipped to Japan. This improves U.S. beef demand prospects going forward, but as indicated by today's Supply & Demand Report, there is some uncertainty about how fast this export demand will ramp up.

90-day outlook: Last Friday's Cattle Inventory Report showed cattle supplies are tightening, as expected. But the report did surprise many by showing that heifer retention has begun. This means the path of least resistance for cattle is likely up. The only question mark is demand.

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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