Livestock Analysis (VIP) -- January 14, 2013

January 14, 2013 11:25 PM
 

Hogs

Price action: Lean hog futures firmed as the day progressed and ended steady to $1.02 1/2 higher for the day. This was at or near session highs for most contracts.

Fundamental analysis: Cash hog bids were variable on light demand to start the week, but the cash market is expected to hold near steady this week as supplies and demand are thought to be fairly balanced. Light support also came from the U.S. Meat Export Federation's analysis of USDA data that showed 2012 pork exports were on pace to top 2011's record both in terms of value and volume; also, USDA on Friday raised its already-strong pork export forecast for 2013.

But producers may be more willing to sell at lower prices this week considering USDA's recent corn supply update, which signals higher feed costs may lie ahead. Whether the pork cutout market strengthens to pull cutting margins back into the black will be key.

Technical analysis: February lean hogs settled high-range, but the contract must close last week's downside gap at $86.10 to signal a near-term low is in place. Strong support remains at last week's double-bottom low of $84.15.

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 closed narrowly mixed -- 25 cent lower to 20 cents higher -- following a light and choppy day of price action.

Fundamental analysis: The premium live cattle futures hold to the cash market limited buying interest to start the week, but selling interest was limited by the tight supply situation. With expectations for late-week cash cattle trade, more choppy price action is likely unless there's an outside factor that influences the market in coming days.

Feedlots are hoping to stem last week's losses in the cash cattle market. But given highly negative packer cutting margins, packers aren't wanting to raise cash cattle bids. The deciding factor may be the boxed beef market, which got off to a decent start this morning, although price action and movement wasn't strong enough to spark active buying.

Technical analysis: February live cattle dropped below initial support at last Friday's low. The December low at $129.77 1/2 is next support. Stronger support lies at the November low of $128.15 and the September low at $127.90. Friday's downside gap from $131.25 to $131.45 must be filled before there are indications a short-term low has been posted.

 

Feeder cattle

Price action: Feeder cattle futures settled slightly lower in all but some of the far-deferred contracts and well off session lows.

Fundamental analysis: Feeder cattle were pressured by strength in the corn market today. But the late trimming of gains suggests traders aren't convinced the corn market is going to be able to sustain price strength since Friday. Unless corn comes under heavy pressure or buying interest picks up in live cattle, however, the upside is likely limited for feeder cattle.

Technical analysis: Bears have short-term technical momentum in March feeder cattle after last week's price action signaled the December breakout attempt from the extended, choppy range failed. Strong support is in the $148.00 to $147.00 area. Resistance extends from around $154.00 to the $157.00 area.

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.

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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