Livestock Analysis (VIP) -- January 6, 2014

January 6, 2014 08:59 AM


Price action: Lean hog futures opened under pressure but came well off session lows into the close to finish narrowly mixed.

Fundamental outlook: Futures favored a weaker tone in morning trade, but came off session lows into the close on concerns about frigid temps. Extreme cold across the Corn Belt has slowed marketings, with at least two packers closed today and others trimming hours. Traders expect packers to raise bids at least tomorrow and Wednesday in order to secure needs.

Meanwhile, the pork cutout market has started the week under pressure, as values slipped 71 cents this morning amid light movement. Packers have seen profit margins tighten recently, which could trim packers' willingness to raise bids. Additionally, nearby futures remain at a sharp premium to the cash index, which raises the risk of profit-taking at any time.

Technical outlook: February lean hog futures gapped slightly lower on the open and extended losses to match support at the top of last week's gap area at $86.10 before firming. The contract still posted a slight losses, but today's high-range close gives bulls a little more momentum heading into tomorrow's open. Therefore, stay in touch for advice to take profits on hedges covering 50% of expected 1st-qtr. marketings in February futures.

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.


Live cattle

Price action: Live cattle futures posted gains of 5 to 52 1/2 cents, which was a mid- to high-range close.

Fundamental outlook: Cattle futures built on last week's price strength as tight supplies and inclement weather supported the market to start the week. While weather conditions are forecast to moderate later this week, nearby live cattle futures are trading slightly below the price at which the bulk of trade took place last week, which should limit profit-taking interest unless there are indications the recent cash rally is stalling.

Boxed beef prices were firmer this morning, building on recent price strength. But the question is whether there's enough retailer demand at current price levels to support additional gains in the cash market. Choice boxed beef prices are at a level that has stalled retailer buying in the past and Select cuts are record-high.

Technical outlook: February live cattle futures hit their highest level since Jan. 7, 2013, today. The next level of strong chart resistance is the contract high at $138.40. The contract is overbought according to the 9-day Relative Strength Index and just about to the overbought threshold for the 14-day RSI, suggesting a pause or price correction may be coming.


Feeder cattle

Price action: Feeder cattle futures closed narrowly mixed after trading firmer for much of today's session.

Fundamental outlook: Mild strength in the live cattle pit, along with chart-based followthrough buying supported feeder cattle futures for much of the day. Tight calf supplies continue to provide fundamental support. But a high-range finish in corn trimmed gains in feeders into the close.

Technical outlook: March feeder cattle futures pushed out to a new contract high but were unable to find fresh buying above the old high of $168.37 1/2. The contract did, however, match the contract-high close at $168.10, suggesting a fresh move to the upside may be in the works.

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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