Livestock Analysis (VIP) -- January 8, 2014

January 8, 2014 09:12 AM


Price action: Lean hog futures ended with slight gains of 2 1/2 to 42 1/2 cents today. That was a mid- to upper-end close.

Fundamental outlook: Mild short-covering was seen in the hog market today after futures started the day under pressure. But buying interest was limited by the premium futures hold to the cash market and the struggles the market is having in trying to find a seasonal low.

Cash hog bids were steady to weaker across the Midwest today as hog movement is expected to pick up as temps start to warm and roads are cleared. With the pork product market struggling to put in a seasonal low, the cash market will remain under pressure. And until the cash market starts to firm, it will be difficult for lean hog futures to find more than light corrective buying interest.

Technical outlook: Key near-term support for February lean hog futures lies at the December low of $84.95. A close below that level would open the downside to the late-August low at $83.35. To the upside, the top of Tuesday's gap at $86.10 is initial resistance, though it would take at least a push above last week's high at $87.35 to hint at a low.

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: February live cattle futures finished low-range and steady on the day. Other contracts settled high-range with gains of 20 to 62 1/2 cents.

Fundamental outlook: While the front-month contract faced some light profit-taking pressure after hitting a new for-the-move high, the rest of the market benefited from the bullish fundamental outlook.

Boxed beef market strength and tight supplies led to record-setting cash cattle prices last week -- mostly around $137. The boxed beef market has delivered an even more impressive performance this week, and highly stressful cold temps are thought to have slowed animal weight gain. This morning, Choice cuts rose $2.49 and Select surged $2.98 (to yet another record of $206.54 per cwt.). Even more notable, movement picked up to 123 loads.

Technical outlook: February live cattle pushed to $137.20 today, but then profit-taking took hold, resulting in a steady finish. Today's high is near-term resistance, followed by the psychological $137.50 and $138.00 levels and the contract high at $138.40. Support stands at the October high of $135.40.


Feeder cattle

Price action: Feeder cattle futures ended high-range in most contracts for the day with gains ranging from 30 to 77 1/2 cents.

Fundamental outlook: Feeder cattle futures benefited from efforts to narrow the discount nearby contracts hold to the cash index today, as well as weakness in the corn market. Spillover from the live cattle market added to the positive tone. Tight calf supplies remain an underlying source of support.

Technical outlook: March feeder cattle futures remain within the uptrend that has been underway since November. Uptrending support drawn off the lows since November intersects around $167.25 tomorrow. Monday's contract high of $168.75 marks resistance.

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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