Livestock Analysis (VIP) -- January 15, 2014

January 15, 2014 09:01 AM


Price action: Lean hog futures posted gains of 17 1/2 to 87 1/2 cents today, with the April contract leading the way.

Fundamental outlook: Much of the strength in the hog market today came via spillover from cattle as that market surged. Traders also covered short positions following a gap-higher open this morning and expectations that a seasonal low should be confirmed soon. The premium futures already hold to the cash market limited buying interest today and will continue to do so until cash hog bids show sustained strength.

Cash hog bids were generally steady to weaker today as packers are having no problem lining up supplies. In addition to plentiful market-ready supplies, hog weights remain hefty, though they did tick down slightly from the previous week. Until pork supplies decline significantly, upside potential in cash hog bids will remain limited.

Technical outlook: February lean hog futures must push above the last correction high on Jan. 2 at $87.35 to trigger additional short-covering. A close above old support at $87.75 is needed to suggest a seasonal low is in place.

Hedgers: 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: Front-month contracts gapped higher at the open and strengthened through the day. Most contracts closed at or near their daily highs. Futures finished 60 cents to $1.77 1/2 higher, with the February contract leading gains.

Fundamental outlook: Another rise in wholesale beef prices along with expectations of a gain in cash prices this week sent nearby contracts gap higher at the open. Boxed beef prices surged $2.73 and Select rose $1.94 per cwt. in morning trading on moderate movement. Packer cutout margins, which had been in the negative by as much of $100 per head just last week, surged into the black this week -- the first time they've seen black ink in an extended period of time.

Showlist estimates are under last week numbers, which should favor producers in cash negotiations this week. Today's estimated slaughter is 116,000 head, up slightly from last week's 115,000 head and down from last year's 125,000 head.

Technical outlook: February live cattle futures soared to a new contract high today, leaving a gap from $137.75 to $138.05, which is now support. Futures easily penetrated psychological resistance at $138.00, turning that into a potential support area as well. This makes $140.00 the next psychological resistance area.

Feeder cattle

Price action: Feeder cattle futures gapped higher at the start of trading and enjoyed gains throughout the day. March through August futures finished 62 1/2 cents to $1.20 higher with March futures leading gains. This varied from a high- to a low-range close.

Fundamental outlook: Feeder cattle futures took their cue from the gap-higher opening in live cattle futures and gapped higher as well. Futures gained strength through the day as corn futures weakened, supporting the deferred contracts. Light support also stemmed from the discount nearby contracts hold to the cash index.

Technical outlook: March feeder cattle futures gapped higher and closed near their highs for the day, suggesting followthrough buying Thursday. The opening surge left a gap from $167.20 to $167.52 1/2, setting up that area as support. Below that, the contract has support every $1 lower. Resistance rests at the Jan. 9 high of $169.40.

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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