Livestock Analysis (VIP) -- January 17, 2013

January 17, 2013 09:08 AM
 

Hogs

Price action: Lean hog futures gapped higher on the open, but most contracts finished below their opening levels. February and April futures ended 80 and 65 cents higher, respectively, while deferred months were narrowly mixed with an upside bias.

Fundamental analysis: Steady to higher cash hog bids again today gave bulls the advantage in the lean hog market. Considering the seasonal tendency for supplies to tighten over the next few weeks, traders expect cash strength to continue, which should limit downside risk for futures. Upside potential for lean hogs will be dependent upon whether improvement in the pork cutout value is enough to pull packer profit margins into the black.

Technical analysis: February lean hogs closed the Jan. 9 gap at $86.10 today, but the contract was unable to sustain buying above that levels and settled below it. This will be bulls' initial target tomorrow. Last week's double-bottom low of $84.15 is strong support.

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 enjoyed choppy trade early today, but the market plummeted around midday, with many contracts falling their $3.00 limit. But futures settled well off their daily lows with losses of "just" $1.07 1/2 to $1.92 1/2.

Fundamental analysis: Live cattle futures were hammered again today, but the source of pressure was much different from the day prior. Cargill announced that it will close a Texas beef plant Feb. 1. (See "Evening Report" for more details.) This signifies other plants will not have to compete as aggressively for supplies.

Earlier in today's session futures saw narrowly mixed trade thanks to some short-covering amid ideas the selloff in reaction to lower cash cattle trade Wednesday was overdone.

Technical analysis: February live cattle futures sliced through major levels of support to prices last seen in June. Today's low of $125.52 1/2 followed by the April low of $124.30 are new support. Resistance is layered from the July low of $127.42 1/2 to the September low of $127.90.

 

Feeder cattle

Price action: Feeder cattle futures were under pressure much of the day, but selling accelerated around midday and futures ended $2.02 1/2 to $2.67 1/2 lower for the day.

Fundamental analysis: Feeder cattle futures saw some followthrough selling early today, and that picked up around 11:30 a.m. CT when the market learned that Cargill plans to close a beef processing plant in a few weeks. This raised concerns about softer feeder cattle demand; the resulting pressure triggered sell stops as futures moved through key levels of support.

Technical analysis: March feeder cattle futures sliced through strong support at both the December and November lows and the contract appears headed for a test of the contract low at $145.10. Former support at the November low of $146.85 is now resistance. According to the Relative Strength Index, the contract is due for a correction; it slipped into oversold territory today.

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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