Livestock Analysis (VIP) -- January 15, 2013

January 15, 2013 09:00 AM
 

Hogs

Price action: Lean hog futures finished with a mixed tone following a choppy day of trade.

Fundamental analysis: Monday's strong close failed to trigger followthrough buying interest. Instead, light profit-taking weighed on the market, although selling interest was limited in the front-month contract as the premium it holds to the cash market has been virtually erased. That should continue to limit near-term downside risk, but without support from the cash market, the upside is also limited.

Cash hog bids were mostly steady today, although there were mixed undertones. Western locations generally favored a mildly firmer tone, while eastern plants had a slight downside bias to cash bids. Mostly steady cash hog bids are expected Wednesday.

Technical analysis: February lean hog futures are working on a short-term low but must fill the Jan. 9 gap from $85.85 to $86.10 to confirm a low. Last week's double-bottom at $84.15 is initial support, followed by the December low at $83.20.

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 settled mid- to low-range and narrowly mixed after a choppy day of trade.

Fundamental analysis: Light trading volume on a general lack of near-term direction resulted in cattle futures chopping sideways again today. Boxed beef prices were mixed Monday and were slightly lower this morning, which isn't surprising considering beef demand is usually lackluster following the holidays. As gains in the cash market have outpaced any gains in beef prices, packers' margins remain buried in the red; therefore, some packers are trimming kill hours to improve their margins.

And while supplies are expected to tighten this year, this week's showlist estimate is steady with week-ago, adding to near-term cash market uncertainty.

Technical analysis: February live cattle futures finished well off today's lows, but within the market's recent downtrend. The contract appears headed for a test of support at the December low of $129.77 1/2. To signal a low is in place, the contract must close last week's downside gap at $131.45.

 

Feeder cattle

Price action: Feeder cattle futures finished low-range with losses of 55 cents to $1.12 1/2.

Fundamental analysis: Feeder cattle futures faced followthrough selling today as recent strength in the corn market, which continued today, pushed the market through near-term levels of support. January feeder cattle are now at a $2 discount to the cash index, which should limit additional near-term downside risk. March futures are trading in line with the cash index.

Technical analysis: March feeder cattle futures pushed through and settled just below the November high of $150.60 today, opening downside risk to the December low of $147.82 1/2, followed by the November low of $146.85.

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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