Livestock Analysis (VIP) -- January 14, 2014

January 14, 2014 09:00 AM


Price action: Lean hog futures started the day mixed and eventually were supported by spillover buying from strength in live cattle futures. The February through October contacts ended 20 to 62 1/2 cents higher, with far deferred futures mixed.

Fundamental outlook: Traders were hesitant to be active buyers given the sizable premium nearby futures hold to the cash index. But spillover from live cattle and midday strength in the pork cutout market helped support futures into the close.

Meanwhile, the cash hog market was mostly steady, which was a disappointment after traders expected some packers to raise bids due to some winter weather moving into areas of the Corn Belt. But packers say they are having no difficulty securing this week's supplies and weather conditions are expected to improve.

Technical outlook: February lean hog futures saw trade below support at yesterday's low and posted a weekly high in a volatile day of price action. Futures finished off session highs, but still closed in the upper quarter of today's price range. Near-term boundaries are support at last week's low of $84.55 and resistance at the January high of $87.35.

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 firmed as the day progressed and the market settled 25 cents to $1.05 higher for the day, with nearbys leading to the upside. This was a high-range close for nearbys, but mid-range for deferred months.

Fundamental outlook: Continued strength in the boxed beef market and tighter showlist estimates increased optimism about higher cash cattle trade relative to last week's record-setting $139 trade on the Southern Plains, with even higher prices seen in Nebraska. This morning Choice and Select boxed beef cuts each surged more than $3 to $219.97 per cwt. and $218.15 per cwt., respectively, with both figures marking new records. Movement also improved to 78 loads.

Cash trade may not take place until late-week; while packers have seen notable improvement in margins, most are still in the red.

Technical outlook: February live cattle surged in late trade and closed above resistance at both $137.00 and $137.50. Bulls' next target is the psychologically significant $138.00 level. The $136.00 area marks support.

Feeder cattle

Price action: Feeder cattle futures enjoyed gains throughout the session, but the market backed well off its highs into the close to finish at or near session lows. Futures ended 35 to 77 1/2 cents higher on the day.

Fundamental outlook: Feeder cattle futures enjoyed corrective short-covering after the market's downside breakout yesterday. Traders believe the downside was overdone considering tight calf supplies and expectations for at least steady cash trade this week. Losses in the corn market added to the positive tone. The same can be said for the roughly $2.50 discount nearby futures hold to the cash index.

Technical outlook: March feeder cattle futures spent the day within the lower part of Monday's trading range, and the contract's low-range finish favors market bears. Their initial target will be Monday's dip to $166.40. Last week's high of $169.40 marks tough resistance.

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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