Livestock Analysis (VIP) -- January 24, 2013

January 24, 2013 08:54 AM
 

 

Hogs

Price action: Lean hog futures gapped higher on the open and nearbys posted strong gains of $1.07 1/2 to $1.67 1/2. Deferred futures ended 37 1/2 to 92 1/2 cents higher.

Fundamental analysis: Early support came from indications of tightening supplies, as packers unexpectedly raised cash bids today. Some locations raised bids as much as $2 to widen negative profit margins, which strongly suggests packers are short bought and in need of immediate supplies. Early expectations are for stronger bids again tomorrow as packers work to secure next week's needs.

Traders will be keeping a close eye on the pork market, as gains are needed to maintain a high level of packer interest. This week's Cold Storage Report showed frozen pork stocks were higher than year-ago levels at the end of December, which could cap near-term upside potential.

Technical analysis: February lean hog futures gapped sharply higher on the open and closed near opening levels to leave a 75-cent gap open for the day. Support lies at the bottom of the gap at $86.00, with resistance at the December high of $87.77 1/2, followed by the contract high of $88.25.

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: Nearby live cattle futures gapped higher on the open and finished 10 to 90 cents higher in all but the April contract, which ended 10 cents lower. This was a low-range close for most contracts.

Fundamental analysis: Live cattle futures benefited from ideas the boxed beef market is searching for a low and that the downside has been overdone recently. But buying interest faded after boxed beef prices again softened this morning and additional cash cattle sales took place at $122 in Kansas today -- steady with yesterday's prices and down $2 to $3 from the bulk of last week's trade. There was talk of trade at $124 at northern locations, however.

Traders are also working to ready positions for tomorrow afternoon's Cattle on Feed Report, which is expected to show On Feed at 95.6% of year-ago levels, Marketings at 104.1% and Marketings at 93.2% of year-ago levels.

Technical analysis: February live cattle still have a long ways to go to signal a low is in place as resistance stands at the July low of $127.42 1/2. Support is layered from the June low of $125.70 to last week's low of $124.85.

 

Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and ended mid- to high-range with gains of 40 cents to $1.20.

Fundamental analysis: Softer corn prices and ideas current prices represent a bargain-buying opportunity considering tightening supply prospects for 2013 gave feeder cattle futures a boost today. This is expected to be reflected by the Cattle on Feed Report Friday. The fact that January futures are at an 83-cent discount to the cash index added light support.

Technical analysis: March feeder cattle futures gapped higher on the open and improved throughout the day. The bottom of today's gap at $147.17 1/2 is new support. The next level of resistance is the psychological $150.00 level, followed by the November high of $150.60.

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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