Livestock Analysis (VIP) -- January 3, 2014

January 3, 2014 08:38 AM


Price action: Lean hog futures closed slightly lower in the front four contracts and choppy in deferred contracts. February futures slipped 40 cents while later contracts finished 30 cents lower to 10 cents higher. While contracts closed near their lows of the day, they finished higher than a week ago with February posting its highest close since Dec. 16.

5-day outlook: Packers continue to pocket profits while nearby supplies are slightly restrained by winter conditions restricting hog transportation. This should help support cash hog prices. While some worry the storms in the northeast may reduce demand in the near term, such disruptions are temporary and the transportation issues in the Midwest may reduce supplies enough to offset the temporary disruption in demand. Cash prices may be working on a seasonal low.

30-day outlook: Cash hog prices should move higher seasonally as supplies are expected to ease going forward. The wild-card is hog weights, which have edge higher recently. If that trend continues, the seasonal increase in prices will be muted. Currently the futures market seems content to keep February futures at a $7 premium to the cash, suggesting traders expect cash prices to rise over the near term.

90-day outlook: USDA's latest snout count suggests hog numbers should be equal to year-ago numbers during the early months of 2014 and then slip 1% from a year earlier due to PEDV. As usual, demand will be key. With beef prices again on the rise, spillover demand to pork could support hog prices and offset any rise in average hog weights.

Hedgers: 50% of expected 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.



Price action: Live cattle futures ended 2013 on a strong note by moving to an all-time high on the monthly continuation chart. That was followed by followthrough to start 2014. Live cattle posted strong gains for the week. Feeder futures posted moderate gains for the week.

5-day outlook: The record-setting pace in the cash cattle market propelled live cattle futures to new highs this week. Cash trade ranged from $135 to as high as $139 in Nebraska. Most of this week's trade was at the $137 mark. February live cattle ended the week at a discount to the top end of this week's cash cattle range as traders are cautious about how much more near-term upside potential there is given the fact packers are dealing with sharply negative profit margins.

30-day outlook: Choice beef values rose back above the $200-per-cwt. benchmark this week and Select values posted a new high. Select cuts hold about a $5.00 discount to Choice. A tighter spread is often seen when consumers are concerned about the economy, but given improved consumer sentiment, the narrowing of the spread reflects the overall tightening of beef supplies and strength in the export market.

90-day outlook: A reduction in beef production is also a symptom of producers more actively holding back heifers for the herd. The Cattle Inventory Report will be released later this month, which will provide a snapshot of producers' plans to rebuild their herds.

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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