Livestock Analysis (VIP) -- January 7, 2014

January 7, 2014 08:48 AM


Price action: Lean hog futures faced pressure for much of the day and the market ended $1.10 to 10 cents lower through the August contract. Farther deferred months were mixed. However, this was a high-range close for most contracts.

Fundamental outlook: Lean hog futures faced profit-taking pressure today amid followthrough selling after last week's failed rally attempt. Also, the market expects hog transportation and processing to get back to normal with temperatures beginning to moderate in the upper Midwest. Strength in the U.S. dollar index added pressure.

However, strong demand and unfavorable weather has kept the cash hog index pointed higher, indicating it has or will soon put in a seasonal low. Plus, the product market improved this morning; the pork cutout value gained $1.46 and movement picked up to 195.60 loads. This helped many contracts to a high-range close as it spurred hopes the product market may also be working on a seasonal low.

Technical outlook: February lean hogs appear headed for a test of key support at the December low of $84.95. But if the market is able to bounce off this level, bulls will initially set their sights on the 2014 high of $87.35.

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: Cattle futures close slightly to moderately weaker in very narrowing trading. Most contracts finished at or near their lows for the day. Futures closed 10 to 77 1/2 cents lower with the February contract down 30 cents.

Fundamental outlook: Traders stepped back today to assess market direction following the posting of record-high cash prices last week. The antic blast has disrupted movement and severely stressed feedlot cattle. Traders are uncertain how this will impact supplies going forward. Showlist estimates are up for Nebraska but are down for Texas and Kansas. This leaves the near-term supply outlook murky.

Meanwhile, wholesale beef prices continue to rise with both Choice and Select boxes posting gains in excess of $1.00 per cwt this morning. But movement was light. This leaves traders wondering whether the slow movement is due to retailer resistance or transportation issues in the East.

Technical outlook: February futures posted an inside day following recent gains. Futures were unable to press above yesterday's high, but trading never slipped below yesterday's open. This suggests pausing action in an uptrend. The contract high of $138.40 is the upside objective. The steep December uptrend line offers support just above $136.00 tomorrow.


Feeder cattle

Price action: Feeder cattle futures posted low-range closes, finishing generally 27 1/2 to 50 cents lower except for the lead-month January contract, which finished up 2 1/2 cents.

Fundamental outlook: Feeder cattle futures finished generally weaker on the setback in live cattle futures. Strength in the U.S. dollar index also proved a slight negative today. But tight supplies supported futures on today's weakness.

Technical outlook: March futures continue to encounter resistance near the old contract high at $168.37 1/2. The contract did find support at Friday's low, suggesting today's setback was merely corrective in nature. The long uptrend line from the August low through the November low provides support at about $166.00 this week.

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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