Livestock Analysis (VIP) -- January 16, 2014

January 16, 2014 08:34 AM


Price action: Lean hog futures closed 27 1/2 to 70 cents higher in the February to July contracts, with April futures leading gains. August futures finished 2 1/2 cents lower,while October and December futures finished 25 to 7 1/2 cents higher, respectively. Most contracts closed near their daily highs.

Fundamental outlook: Lean hog futures moved higher again today on spillover strength from cattle futures. Traders leaned to the plus side today on ideas the run to record-high prices in wholesale beef will lift pork cutout values. Today's wholesale pork market cooperated with that view by rising $1.20 per cwt. in morning trading. The rise in price came on solid movement, as well.

Cash hogs prices were mostly steady today as packers continue to cut in the black and wholesale prices rebounded from Wednesday's downturn. However, supplies are plentiful and packers do not have to bid up to fill kill lines. Today's estimated slaughter is 428,000 head, which is down slightly from last week's 429,000 head and up slightly from 427,000 head a year ago.

Technical outlook: February lean hog futures edged higher today but remain just under the last correction high at $87.35 posted Jan. 2. It takes a close above that level to trigger additional short-covering. A close above $87.75 would suggest a seasonal low is in place. A small 7 1/2-cent gap exists at $86.42 1/2 from yesterday's gap open. That small gap sits just above support at $86.00.

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: Live cattle futures surged to an all-time high of $141.00 on the monthly continuation chart before trimming gains. February through August futures closed 12 1/2 to 72 1/2 cents higher, with deferreds ending narrowly mixed.

Fundamental outlook: Futures surged on news of record cash cattle trade occurring at $141 to $142 in the Southern Plains -- up $3 from the bulk of last week's trade. Nebraska has seen trade as high as $144 today. Packers are willing to raise bids as beef values have surged over the past week to lift their profit margins back into the black after cutting in the red for an extended period.

Additional support came from winter weather that is moving into the Northern and Central Plains, as well as into the western Corn Belt today, adding stress to feedlots. But some profit-taking was seen in late trade, which has traders wondering if a near-term high has been posted.

Technical outlook: February live cattle futures gapped to a new high of $140.70 and extended gains to to $141.00 before profit-taking was seen. Futures left a gap open on the chart despite today's low-range close. The bottom of the gap at $139.65 is initial support.


Feeder cattle

Price action: Feeder cattle futures rose to an all-time high of $170.15 on the monthly continuation chart before seeing some profit-taking. Futures closed steady to 40 cents higher.

Fundamental outlook: Feeder futures were supported by tight supplies and spillover from live cattle, with slight strength in the corn market limiting buying interest. January feeders ended the day at around a $1.50 discount to the cash index, which limits the risk of followthrough profit-taking tomorrow.

Technical outlook: March feeder cattle futures posted a daily high of $168.90 today before setting back into the close. Near-term boundaries are resistance at last week's contract high of $169.40 and support at Monday's low of $166.40.

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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