Livestock Analysis (VIP) -- January 17, 2014

January 17, 2014 09:00 AM


Price action: Lean hog futures closed steady to moderately lower, with February futures leading the decline. February futures posted a midrange close while deferred contracts closed near their daily highs. Futures managed to close slightly higher on the week.

5-day outlook: Hog futures continue to work on posting a seasonal low. Pork packers continue to cut in the black, but supplies remain ample. As a result, the basing in hog prices may continue without much move to the upside until total supplies decline.

30-day outlook: Both cash and futures prices should trend higher as supplies ease seasonally. In addition, record-level wholesale beef prices could translate into spillover demand at the meat counter and restaurant tables as consumers balk at higher beef prices. But February futures have already priced in a $6 rise in cash prices.

90-day outlook: The impact of the porcine epidemic virus (PEDV) could start impacting hog numbers in the months ahead, which would be supportive to hog prices. USDA's latest hog count shows a slight rise in farrowings in the first half of the year, but the disease could impact survival rates and trim numbers eventually moving to slaughter. But with feed costs down versus a year earlier, average hog weights will likely continue to run high, offsetting some of the reduction in numbers. In addition, the lower feed costs will also provide incentive to boost farrowing intentions throughout the year.

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.



Price action: After a gap lower start, nearby live cattle futures recovered and ended 15 to 20 cents higher. Deferred futures closed steady to 40 cents lower. February live cattle posted sharp weekly gains thanks to the record rise in boxed beef prices and the cash cattle market.

5-day outlook: Traders will be keeping a very close eye on the boxed beef market which ended the week strong. Choice beef values rose above $231.00-per-cwt. this morning -- a record. Equally impressive is that movement has remained "decent" (not strong) this week. Indications the beef market has reached a high would deflate the cash market and futures.

30-day outlook: Increased price volatility at high levels is a clue the market is working on a high. The current sharp pace of gains in futures and the cash market can't and won't be sustained. But price pressure on a downside correction should be limited given the tight supply situation, unless trade issues or an animal health issue surfaces.

90-day outlook: USDA's Cattle Inventory Report, to be released Jan. 31, will provide the market with indications of heifer retention. Aggressive retention would suggest we are clearly in the process of putting in a major high. Given ongoing drought in the South and Southwest, the rate of heifer retention remains a question.

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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