Livestock Analysis (VIP) -- January 25, 2013

January 25, 2013 08:54 AM
 

Hogs

Price action: Lean hog futures settled 7 1/2 to 75 cents lower on a pullback from yesterday's strong gains. For the week, nearby hog futures led price gains.

5-day outlook: With February hogs trading at a discount and the April contract in line with the cash index, near-term downside risk is limited unless the cash market is under constant pressure. While packer margins are deep in the red, most plants are thought to be short-bought for next week and wintry weather may continue to slow hog movement. As a result, the cash hog market is expected to be no worse than steady to start next week.

30-day outlook: So far, Russia's stance on not allowing ractopamine in U.S. pork shipments has been mostly political posturing. But it's an issue traders will continue to watch closely. Any reduction in pork exports to Russia would be somewhat price-negative.

90-day outlook: Given abundant supplies of pork in storage, some packers may look to fill demand that way instead of actively competing for what should be a seasonally tightening supply of market-ready hogs if margins remain buried in the red. If packer margins don't improve, it could slow or delay the seasonal rise in the cash hog market.

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 and feeder cattle futures closed mixed today, but posted gains for the week. Bulls still have work to do in order to signal near-term lows have been posted.

5-day outlook: Futures should get a lift from this afternoon's Cattle on Feed Report, which showed On Feed at 94%, Placements at 99% and Marketings at 98% of year-ago levels. The report reflects a tighter-than-expected feedlot situation. Placements, which were expected to be above year-ago levels for the first time in six months, signal feedlot supplies are getting tighter.

30-day outlook: The tight supply situation is known, which is putting focus on demand. The boxed beef market faced sharp price pressure this week as retailers are showing resistance to higher prices, but beef movement improved. Additionally, a historically weak U.S. dollar will maintain solid export demand, which should see a boost next month as Japan is set to finalize its rule for importing U.S. beef from animals 30-months and younger (previously 20-months and younger).

90-day outlook: The cattle market could be as much of a weather market as corn and soybeans were last summer. That's because pasture continues remain very poor in the Southern Plains. The dry weather forecast doesn't bode well for heifer retention, but once producers begin to keep heifers out of the slaughter mix, market supplies will tighten and drive cattle futures to a 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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