Livestock Analysis (VIP) -- January 9, 2014

January 9, 2014 08:43 AM


Price action: Lean hog futures gapped lower on the open and trimmed losses to finish 12 1/2 to 45 cents lower. Nearby futures ended 32 1/2 to 37 1/2 cents lower.

Fundamental outlook: Early pressure was tied to weakness in the pork market, as values slipped sharply yesterday and saw light followthrough pressure this morning. But traders believe the recent pickup in pork movement signals the product market is working on or close to posting a near-term low. Futures need confirmation of a low, however, in order to help rebuild upward momentum in futures, as packers' profit margins have tightened considerably.

The cash hog market was softer in many locations today due to more favorable weather across the Corn Belt, although another wave of precip could begin tomorrow. Early expectations are for steady to weaker bids tomorrow.

Technical outlook: February lean hog futures gapped to a new-for-the-move low and extended losses before filling the gap. Today's low of $84.55 is initial support, with resistance at last week's 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: Live cattle futures closed slightly higher with the exception of the April contract which finished down 10 cents. February, June and deferred futures finished 2 1/2 to 47 1/2 cents higher. February futures closed low-range.

Fundamental outlook: Cattle futures edged higher as traders expect cash prices to hold at least steady with last week's $137 in the Southern Plains. Today's close saw February futures finish at a slight discount to that price level. Choice beef rose $1.83 today, while Select beef jumped $2.22 on average movement of 90 loads in morning trading.

USDA pegs today's estimated slaughter at 117,000 head, which is down from 121,000 last week and 126,000 a year-ago.

Technical outlook: February live cattle futures took out yesterday's high but failed to hold the gains and finished fractionally lower for the day. An expansion of the trading range with failure to close higher can be a signal a market is reaching an exhaustion phase. That is a possibility given the fact cattle futures are heavily overbought. The $136.50 level is the first line of support with the $135.00 are the next layer of support on the downside.


Feeder cattle

Price action: Feeder cattle futures edged higher in narrow trading finishing 7 1/2 cents to 67 1/2 cents higher.

Fundamental outlook: Feeder cattle futures gained support from the selloff in grain futures as well as the slight gains in lean cattle futures. Meanwhile, prices have continuing long-term support from the expected decline in feeder cattle numbers due to herd rebuilding.

Technical outlook: March futures gapped higher on the open but slipped back after initially pressing higher. However, futures failed to fill the opening gap leaving a small gap of 25 cents on the chart. The August/November uptrend line offers support at about $166.50 on Friday.

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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