Livestock Analysis (VIP) -- January 21, 2014

January 21, 2014 08:57 AM


Price action: Lean hog futures saw a quiet, choppy day of trade. The market settled 20 cents lower in the front-month, 12 1/2 to 47 1/2 cents higher in the April through August contracts and mildly lower in far deferred months.

Fundamental analysis: Lacking price direction, traders in the lean hog market focused on evening positions to start the week. While traders expect the record-setting rally in the beef market to eventually translate to improved pork demand, the pork market has yet to put in a seasonal low. The pork cutout value slid $1.31 this morning and movement was lackluster.

Meanwhile, the cash hog market was also a mixed bag. Some packers returned from downtime Monday in need of supplies and had to pay up due to slick Midwest roads and cold temps. But others had no trouble booking needs and paid lower prices for market-ready hogs. Packers are again enjoying wide profit margins.

Technical analysis: February lean hog futures favored the downside as the contract remains at a wide premium to the cash index. Support is at the 2014 low of $84.55. The January high of $87.35 marks resistance.

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 ended 62 1/2 to $1.20 higher, which was a mid- to mostly high-range close.

Fundamental analysis: Surging wholesale beef prices again provided fundamental support for live cattle futures. Choice and Select boxed beef prices each moved to a new high today, though movement remains thin as weather is disrupting beef trade and retailers are showing signs of balking at historically high prices.

Surging boxed beef prices set the stage for higher cash cattle prices in the Plains again this week, especially with packer margins now estimated to be deep in the black. But showlist numbers are up throughout the Plains except for Kansas and there are questions about how far packers will chase the cash market, even with strong margins.

Technical analysis: February live cattle futures are heavily overbought according to the Relative Strength Index. While that suggests a time or price correction is overdue, markets can trade in heavily overbought territory for extended periods when attitudes are extremely bullish.

Feeder cattle

Price action: January feeder cattle futures closed 20 cents lower, while deferred contracts ended slightly higher.

Fundamental analysis: Strength in live cattle supported feeders today. But limited selling pressure on corn capped gains in the feeder cattle market. Traders are also sensing a correction is likely.

Technical analysis: Unlike live cattle, March feeder cattle are trading beneath the contract high. Failure to post an upside breakout could trigger a round of profit-taking, but a move to a new high would likely spark fresh chart-based buying.

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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