Livestock Analysis (VIP) -- January 16, 2013

January 16, 2013 09:14 AM
 

Hogs

Price action: Lean hog futures saw another choppy day of trade and ended narrowly mixed with most contracts mildly favoring the downside. Spillover from live cattle caused nearby contracts to end low-range.

Fundamental analysis: Both buying and selling interest was limited in the lean hog market today. While the pork cutout value improved yesterday, gains in price have not been consistent and packer cutting margins have thus remained in the red.

Nevertheless, cash hog bids were steady to higher today as some packers are in need of additional supplies. But sustained strength in the cash hog market will not be seen until margins improve. This is expected to occur as supplies tighten and some consumers opt to purchase more economical pork over beef, but the timing of this remains uncertain.

Technical analysis: February lean hogs saw an inside day of trade, leaving support at last week's double-bottom of $84.15 and resistance at the top of the Jan. 9 gap at $86.10.

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 plummeted after midday to end with losses of $1.17 1/2 to $1.90.

Fundamental analysis: Live cattle futures came under heavy pressure after the start of light cash cattle trade in Texas and Kansas at $125 today. This was down $1 from the bulk last week's trade. Choppy boxed beef prices on the seasonal tendency for a pullback in demand after the holidays along with negative cutting margins gave packers an edge.

Traders disregarded a rebound in the boxed beef market this morning, which, if continued, could help those feedlots that held onto cattle secure better prices. Choice cuts firmed 32 cents and Select cuts rose $1.35 this morning. Movement was also solid at 117 loads.

Technical analysis: Followthrough selling tomorrow in February live cattle would set the contract up for a challenge of support at the November low of $128.15, followed by the September low of $127.90. Today's action did bring February futures within 1.66 points of oversold territory, however. Resistance on a corrective bounce stands at the December low of $129.77 1/2, followed the psychological $130.00 mark.

 

Feeder cattle

Price action: Feeder cattle futures faced pressure much of the day, but selling really picked up after midday. Futures ended just off session lows with losses of $1.25 to $2.15.

Fundamental analysis: Feeder cattle futures saw some early followthrough selling on the continued strength in the corn market early this morning. When corn later softened, feeder briefly bounced into positive territory. But spillover from live cattle helped to push nearby feeder cattle futures through near-term support levels and technical selling accelerated.

Technical analysis: March feeder cattle futures took out psychological support at $150.00 and $149.00, turning these levels into new resistance. The contract is now poised for a test of 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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