Livestock Analysis (VIP) -- January 13, 2014

January 13, 2014 09:13 AM


Price action: Lean hog futures faced pressure throughout the day and ended steady to 62 1/2 cents lower on the day, with nearbys leading losses. This was at or near session lows for nearby contracts.

Fundamental outlook: Uncertainty about near-term price direction in the lean hog market had traders reducing risk to start the week. While the cash hog market has improved in recent weeks and the cash hog index has been on a gradual rise, the product market has yet to follow suit. Pork prices have struggled to string together multiple days of gains. On Friday, the pork cutout value slid, and the same held true this morning. Softer prices have encouraged strong movement, however.

But the market's downside is also limited as USDA on Friday said the porcine epidemic diarrhea virus (PEDV) is expected to keep market ready hog supplies "relatively tight during 2014." The exact impact is still very much uncertain.

Technical outlook: Near-term support for February lean hogs lies at week's low of $84.55. The January high of $87.35 marks resistance.

Hedgers: Profits on the 1st-qtr. hedges have been claimed. 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 favored a weaker tone and ended narrowly mixed. February live cattle closed 10 cents lower and April closed 10 cents higher.

Fundamental outlook: Pressure on futures was limited as nearby contracts hold a discount to last week's cash cattle trade, which occurred as high as $140 in the Plains. But the discount structure signals traders believe the cash market is nearing a high. Meanwhile, Choice beef values rose another $1.76 this morning and Select was up $2.01 to post records.

This week's cattle showlist is down from last week, which gives feedlots the upper hand in cash negotiations. Packers are dealing with negative profit margins, but due to tight supplies, have been forced to raise bids in recent weeks.

Technical outlook: February live cattle futures briefly traded above Friday's high but then moved below Friday's low. The contract finished well off the daily low and steady with Friday's low. Resistance stands at last week's high of $137.30. Support begins at today's low of $136.25 and extends to the October high of $135.40.

Feeder cattle

Price action: Feeder futures ended 75 cents to $1.17 1/2 lower and finished low-range for the day.

Fundamental outlook: Futures were pressured by slight strength in the corn market. Traders are using this as a reason to even positions. January feeders ended the day at more than $3 discount to the cash index, which signals traders believe a near-term high is in the works. But this also limited additional near-term downside risk as the contract has the responsibility of following the cash index ahead of expiration.

Technical outlook: March feeder futures posted a big downside day of trade on the daily chart and violated uptrending support drawn off November and December reaction lows. Followthrough pressure tomorrow would strongly suggest a near-term high has been posted. Support on a downward correction lies at the November low of $162.30.

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. protein needs are covered in long March meal futures at $410.80.

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