Livestock Analysis (VIP) -- January 31, 2013

January 31, 2013 09:20 AM
 

Hogs

Price action: Lean hog futures finished mixed -- 27 1/2 cents lower to 50 cents higher -- following a choppy day of trade.

Fundamental analysis: February lean hog futures were supported by the discount the lead-month contract holds to the cash market. With poor road conditions in some areas and bitter cold gripping the country's midsection, traders are expecting near-term strength in the cash market. But mild profit-taking limited buying interest in some of the deferred contracts.

Packers are having problems getting hogs to town given inclement weather. As a result, cash hog bids were steady to firmer at most locations today despite negative cutting margins. A steady to firmer cash tone is expected again Friday.

Technical analysis: February lean hog futures are nearing tough resistance at the contract high of $88.25. Bulls need a breakout to a new high and followthrough buying at that level to avoid short-term topping action on the daily chart.

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 enjoyed gains for most of the day, but profit-taking picked up late in the session and futures ended narrowly mixed with the February through June contracts 12 1/2 to 37 1/2 cents lower and far-deferred months steady to slightly higher. This was at or near session lows for nearby contracts and around mid-range for deferred contracts.

Fundamental analysis: Traders evened positions for what is expected to be a bullish semiannual Cattle Inventory Report tomorrow afternoon. But further slides in the boxed beef market this morning and the fact that nearby futures are at more than a $2 premium to this week's cash cattle trade in the Plains led to an increased profit-taking late in the session. Traders will likely be focused on readying positions for the report again tomorrow.

Technical analysis: February live cattle futures posted a bearish reversal and dipped farther into last week's wide upside gap but did not close it. Support lies at the bottom of this gap at $126.97 1/2. Near-term resistance stands at Monday's high of $129.00.

 

Feeder cattle

Price action: Feeder cattle futures spent the day in positive territory, but futures reined in gains heading into the close and ended low-range with gains of 27 1/2 to 47 1/2 cents. The January contract expired at $146.30 today.

Fundamental analysis: Feeder cattle futures got off to a moderately higher start thanks to expectations Friday's semiannual Cattle Inventory Report will reflect tightening supplies (see "Evening Report"). The market also benefited from early weakness in the corn market. But as nearby corn futures turned higher ahead of midday, some light profit-taking picked up in the feeder cattle market, resulting in a low-range close for most contracts.

Also limiting both buying interest is the $3-plus premium the new front-month March contract holds to the cash index.

Technical analysis: March feeder futures traded up to psychological resistance at $150.00 today, but couldn't clear that level. Above that price, resistance is layered from Monday's high of $150.45 to the October high of $153.20.

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. 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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