Livestock Analysis (VIP) -- January 22, 2014

January 22, 2014 08:42 AM


Price action: Lean hog futures saw a mixed day of trade, but the market firmed into the close to end higher in all but the February contract and far-deferred months. February hogs closed 42 1/2 cents lower, while April through August ended 7 1/2 to 60 cents higher.

Fundamental analysis: Pressure on February hogs came as the contract holds a sizable premium to the cash index, which raises the risk of followthrough selling in the near-term. But strength in the cattle market provided late spillover support to spring- and summer-month futures.

Meanwhile, pork cutout values were weaker again this morning, but movement improved, which signals prices are attracting demand. The cash hog market was mixed today amid varied demand. Some locations are still in need of supplies due to blowing snow across the Corn Belt, while others are say they will have no difficulty securing supplies. Packer profit margins are well in the black, which encourages them to keep kill lines running as full as possible.

Technical analysis: April lean hog futures posted a bullish reversal after slipping below the $92.00 level in early trade. The high-range close gives bulls momentum heading into tomorrow's open. Followthrough buying would have bulls targeting the November high of $94.15.

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 posted strong gains in the final hour of trading to finish the day moderately to sharply higher. Most contracts either closed near their daily highs or in the upper third of the day's range. Futures finished $1.07 1/2 to $2.12 1/2 higher with February futures leading gains.

Fundamental analysis: Futures started the day with slight gains in the front contracts and slight losses in deferred contracts as traders waited on results from cash negotiations. Futures firmed on news wholesale beef prices rose again with Choice boxed beef rising $1.01, reaching $240.73 per cwt. in morning trading. Select beef rose 17 cents.

Futures moved sharply higher with deferred contracts reversing losses on news cash cattle trade had reached a record $147 in the Southern Plains -- up $5 higher from last week. There is also news some feedlots in Nebraska have turned down $150 bids today. With February futures trading at wide discount to that cash prices, traders quickly stepped into narrow that discount. Today's estimated slaughter is 119,000 head versus 116,000 head a week ago and 123,000 head a year ago.

Technical analysis: With futures in uncharted territory, traders are struggling to find potential upside resistance areas other than the $147 cash price reported out of the Southern Plains. That is about $3.50 higher than where February futures finished trading today. The first level of support is yesterday's high at $141.90.


Feeder cattle

Price action: Feeder cattle futures surged in late-session trading to close moderately to sharply higher, finishing near their daily highs. Futures finished $1.50 to $2.05 higher with March futures leading gains.

Fundamental analysis: After starting the trading day on the defensive, feeder cattle futures soared near the end of the trading session in spillover from live cattle futures. Feeders traded on the negative side of Tuesday's close in correctional action and in sympathy with early weakness in deferred live cattle futures contracts. That changed when live cattle futures soared on news $147 was being for live cattle in Kansas and Texas.

Technical analysis: March feeder cattle futures gapped lower on the open and traded weaker before reversing course, filling the gap and surging to highs. This makes the old high at $169.40 support and sets up psychological resistance at $175.00.

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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