Livestock Analysis (VIP) -- June 4, 2013

June 4, 2013 09:32 AM


Price action: Lean hog futures closed 70 cents to $1.20 higher through the October contract. Farther-deferred futures posted lesser gains.

Fundamental analysis: A tightening supply of market-ready hogs was the fundamental backing for price strength in the hog market today. Additional support came from the cash hog market as prices were mostly steady. Instead of actively lowering cash hog bids amid thin margins and tightening market-ready supplies, most packers remain willing to compete for supplies, giving traders some hope the cash market will firm if margins improve.

Technical analysis: While fundamentals are solid, most of today's price strength came amid technical-based buying as June lean hogs gapped above the 200-day Moving Average, which triggered buy stops. Next daily chart resistance is at the Jan. 30 high at $98.80. The 200-day Moving Average remains an upside target for July and August lean hog futures.

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

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.



Live cattle

Price action: Following yesterday's losses, live cattle futures benefited from late-session short-covering to close 22 1/2 to 72 1/2 cents higher.

Fundamental analysis: Cash cattle trade could be a few days off as packers have not yet begun bidding for cattle, but traders opted to trim the discount June live cattle hold to last week's cash trade. The contract ended the day at a $3 discount to last week's $124 cash cattle trade and this week's showlist is tighter in the Southern Plains, but up a bit from last week in Nebraska. Therefore, traders will continue to keep a close eye on the boxed beef market for cash clues. So far this week beef prices have softened on lackluster movement, which suggests steady-at-best cash cattle trade. However, packers' profit margins are well in the black, which gives them room to raise bids if they are in need of supplies.

Technical analysis: August live cattle futures saw trade above last week's high of $120.55 but closed mid-range. Today's high of $120.90 is initial resistance, but futures need closes above the May high of $124.10 to confirm a low has been posted. Contract-low support is at $117.90.


Feeder cattle

Price action: Feeder cattle futures posted a high-range close to finish 70 cents to $1.25 higher.

Fundamental analysis: Feeder futures benefited from short-covering and spillover from live cattle, as well as weakness in the corn market. But buying was limited by the sharp premium nearby futures hold to the cash index, which raises the risk of additional profit-taking pressure at any time.

Technical analysis: August feeder cattle futures gapped higher on the open, filled the gap, but closed near the session high. Followthrough buying tomorrow would provide some clues of a near-term low being in the works. But to confirm a low is in place the contract needs to return to around the $150.00 level.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.


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