Livestock Analysis (VIP) -- January 28, 2013

January 28, 2013 09:07 AM
 

 

Hogs

Price action: Lean hog futures closed 12 1/2 to 70 cents higher in all but the May contract, which ended 10 cents lower. Far-deferreds also posted slightly losses. Nearby futures ended near session lows, while summer-month contracts closed near daily highs.

Fundamental analysis: Hog futures benefited from spillover from sharp gains in live cattle futures, although buying was limited as traders are concerned that packer demand for hogs could wane given negative profit margins. As a result, traders were hesitant to push nearby futures too far ahead of the cash index. February hogs are trading at around a $1.50 premium to the cash index.

Meanwhile, cash hog bids were as much as $2 higher due to tight market-ready supplies and poor road conditions across the Midwest, which limited transportation of animals today. Early expectations are for firmer bids again tomorrow despite negative cutting margins.

Technical analysis: February lean hog futures gapped above resistance at last week's high of $87.35 but filled the gap and posted a low-range close. Clearing resistance at the December high of $87.77 1/2 and the contract high of $88.25 would open fresh upside potential, while support lies at the January low of $84.15.

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: Live cattle futures gapped higher on the open and didn't look back. Futures ended high-range with gains of $1.15 to $2.65, with nearbys leading to the upside.

Fundamental analysis: Live cattle futures benefited from both supply and demand news today. Bulls were enthused by confirmation Japan will ease its U.S. beef import restriction to cattle aged under 30 months from its current 20-month limit. This should provide U.S. beef a major export boost in the years ahead.

The market also had Friday's bullish Cattle on Feed Report to digest. The report showed On Feed and Placements below the average pre-report trade guess and all categories below year-ago levels. Also, this week's showlist estimates are sharply lower thanks to a 29,000-head decline in Nebraska, along with a 4,000-head decline in both Kansas and Texas.

Technical analysis: February live cattle gapped higher on the open and traded up to levels seen prior to the Cargill plant-closure-inspired selloff Jan. 17. This sets the contract up for a challenge of the December low of $129.77 1/2, followed by the psychological $130.00 level. Near-term support stands at the November low of $128.15.

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.

 

Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and settled an impressive $1.10 to $2.15 higher. This represented a mid- to low-range close for most contracts, however.

Fundamental analysis: Feeder cattle futures also benefited from the improved demand prospects that the easing of Japan's beef import restrictions signal for the U.S. as well as from concerns about tight supplies. But the market backed off its early gains into the close as the corn market reversed early losses and then strengthened into the close.

Technical analysis: March feeder cattle futures traded through but settled a dime below psychological resistance at $150.00. A move through this level would have bulls targeting the October high of $153.20. Strong support stands at the November low of $147.77 1/2.

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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