Livestock Analysis (VIP) -- June 5, 2013

June 5, 2013 09:27 AM


Price action: June lean hog futures settled 12 1/2 cents higher, while deferred months were slightly lower in most contracts.

Fundamental analysis: Lean hog futures faced profit-taking today after recent price strength. But the corrective selling was limited as bullish attitudes are strong. Traders are also expecting the cash hog market to continue to firm into mid-summer amid tightening market-ready supplies.

The cash hog market was steady to firmer through much of the morning, but some weaker bids began to develop late morning. Plants have turned their attention to improving margins by cutting back in kill hours and are now starting to lower cash bids. If margins improve quickly, any downturn in cash hog bids should be limited by tightening supplies.

Technical analysis: July lean hog futures posted a modest inside day down on the daily price chart, but the uptrend from the March low remains firmly intact. Tuesday's high at $94.90 is key near-term resistance as that also marks the bottom of the Feb. 7 gap, which extends to $95.20. Filling that gap would have bulls targeting the February high at $98.55.

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: Live cattle futures closed moderately weaker and near their lows of the day with losses of 50 cents to $1.05.

Fundamental analysis: The market is still waiting on the cash trade to develop with a wide spread between packer bids and feedlot asking prices. Packers margins are positive so bids could be raised if beef trade warrants. Unfortunately, Choice boxed beef this morning weakened 89 cents this morning. While boxed beef prices remain historically strong, falling values do not give packers incentive to aggressively bid for slaughter supplies. Futures traders are pricing in lower cash bids with the August contract priced at about a dollar under the expiring June, which is at a $3 discount to last week's Southern Plains cash trade.

Technical analysis: August live cattle posted a tight trading range at the low end of Tuesday's wider range. Futures continue to trend sideways since marking a contract low at $117.90. That will continue to serve as support. Yesterday's high of $120.90 is initial resistance. It would take a surge above the May high of $124.10 to confirm a low has been posted.


Feeder cattle

Price action: Feeder cattle futures closed mostly 30 to 97 1/2 cents lower and at today's lows.

Fundamental analysis: Weakness in live cattle futures pressured feeder cattle despite the setback in corn futures. Feeders still remain at a large premium to the cash index, which was also a source of pressure today.

Technical analysis: August futures are being compressed into a tight trading range with yesterday's high at $146.00 providing resistance and the contract low of $142.50 being support. It would take a close above the last reaction high at $152.17 1/2 to confirm a bottom.

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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