Livestock Analysis (VIP) -- January 18, 2013

January 18, 2013 08:35 AM
 

Hogs

Price action: Lean hog futures wrapped up a quietly traded day of trade with a narrowly mixed finish. The market ended with gains for the week.

5-day outlook: Demand will likely be limited next week as a combination of steady to firmer cash hog bids with little improvement in the pork cutout value this week pulled packer profit margins deeper into the red. Traders will also have another USDA Cold Storage Report to digest Tuesday. It is expected to show frozen pork stocks as of Dec. 31 at 527 million lbs, which would be down 5.5% from November but up 8.8% from year-ago.

30-day outlook: But downside risk for lean hogs is likely limited over the near-term as the seasonally tightening supplies the next few weeks should keep a floor under the cash market. In addition, market bulls are hopeful pork will benefit from high beef prices causing some consumers to turn to the "the other white meat."

90-day outlook: Fourth quarter GDP signaled economic growth in China is on the rise. This should translate to ongoing pork demand strength. Pork exports for 2012 as of November were on track to set a new record in terms of both value and volume. And, USDA's latest Supply & Demand Report projects near equally strong exports for 2013.

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.

 

 

Cattle

Price action: Live cattle futures faced sharp price pressure this week to do serious technical chart damage. February live cattle are now trading in line with the cash market and are technically oversold, which suggests a time or price correction is due. Feeder cattle futures also ended sharply lower for the week, with the March contract posting a fresh contract low today.

5-day outlook: Price pressure from news Cargill will idle a beef processing plant in Texas raises concerns that feedlots will be backing up, especially with dressed cattle weights running more than 20 lbs. above year-ago levels (which suggests lots are already backed up). But this plant has been running at reduced capacity for quite some time and supplies are tight. As a result, traders should view the sharp price setback as a buying opportunity given the bullish longer-term supply situation.

30-day outlook: Next week's Cattle on Feed Report will remind the market of tight supplies, as Placements should run below year-ago throughout 2013 and well into 2014. USDA will also release its Cattle Inventory Report on Feb. 1, which will provide more clues as to beef production potential this year.

90-day outlook: With drought expected to linger in the Southern Plains into spring, pasture conditions will remain in very tough shape. A turnaround in pasture conditions is needed to encourage producers to hold back heifers to rebuild the herd. Once producers begin their period of heifer retention, beef supplies will tighten considerably to push futures to the 10-year cycle high.

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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