Livestock Analysis (VIP) -- January 4, 2013

January 4, 2013 08:53 AM


Price action: Lean hog futures ended the day steady to slightly lower and posted slight losses for the week. February hog futures ended the week at about a $3 premium to the cash index.

5-day outlook: All eyes will be on the pork cutout market next week after prices and movement surged late this week. If this trend continues, it would bolster packer demand for cash hogs. Early expectations are for steady cash hog bids to start next week, although some packers are in need of supplies to fill a full kill schedule.

30-day outlook: Pork remains competitively priced compared to beef, which is a supportive factor for the hog market due to tighter supplies of competing meats. Traders are also likely to maintain some premium to the cash market in nearby futures throughout winter due to the risk of travel disruptions and weather stress on animals.

90-day outlook: The latest Hogs & Pigs Report points to virtually steady pork production in 2013. Key will be dressed hog weights, which are currently running 3 lbs. lighter than year-ago levels. Exports will also be a key price driver this year as this was a bright spot for the hog market in 2012.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Carry all corn-for-feed and soybean meal risk in the cash market for now.




Price action: Live cattle futures saw choppy trade today but profit-taking picked up into the close. Futures ended 15 to 90 cents lower in most contracts for the day and steady to slightly lower for the week. Feeder cattle futures, on the other hand, ended with moderate to sharp gains for the day and moderately higher for the week.

5-day outlook: As of press time, only light cash cattle trade in Nebraska at higher prices than last week was reported, but no trade out of Kansas or Texas was reported. This means it is likely this week's showlist may not be cleaned up, which along with negative packer profit margins, could weigh on the cash market and thus futures next week.

30-day outlook: But expectations for tightening supplies through 2013 mean downside risk for cattle will likely remain limited to brief periods of corrective selling, so long as demand remains solid. The caveat there could be the U.S. economy. Lawmakers pulled the U.S. back from the fiscal cliff, but across-the-board spending cuts and a debt limit hike must be dealt with the first months of the year. Any economic headwinds that result could limit beef demand.

90-day outlook: Cattle futures are expected to hit a 10-year cycle high in 2013 when pasture conditions improve enough to encourage producers to move heifers out of feedlots and into the breeding herd. This means pasture conditions and the drought stretching from the Southern Plains to the Northern Plains and into the Midwest will increasingly be in focus.

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: Carry all corn-for-feed and soybean meal risk in the cash market for now.


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