Livestock Analysis (VIP) -- March 10, 2014

March 10, 2014 09:52 AM


Price action: Lean hog futures finished sharply to limit higher amid continued bullish enthusiasm over supply concerns.

Fundamental outlook: Ongoing uncertainty over the impact of porcine epidemic diarrhea virus (PEDV) on marketings as the virus continues to spread kept traders adding to their long positions. There seems to be little concern with the extremely overbought condition of the market, with futures posting fresh contract highs.

The cash hog market was as much as $2 higher to start the week to signal strong packer demand for hogs. Ongoing strength in the pork cutout market is helping keep packer margins in the black. This morning, pork values were $1.26 higher on moderate movement.

Technical outlook: April lean hog futures finished its $3.00 limit higher by closing on the contract high of $116.00. Resistance is layered every $1 higher at psychological levels. Steep uptrending support currently intersects near $112.00.

June lean hog futures also closed limit higher at $123.50. A great hedging opportunity for summer marketings is developing, but we'll wait for signs of topping before entering hedges.

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

Feed needs: Profits on the 1st-qtr. meal hedges have been claimed. Carry all corn-for-feed and meal risk in the cash market for now.


Live cattle

Price action: Live cattle futures saw a choppy day of trade, but bulls had the advantage heading into the close. April live cattle ended a dime lower while the rest of the market posted gains between 35 and 60 cents.

Fundamental outlook: Live cattle futures saw some mild profit-taking on the open, but the market eventually returned to extending the uptrend. Ongoing strength in the boxed beef market and the fact that nearby futures are at a substantial discount to the cash market contributed to the positive tone. Choice cuts surged $1.72 and Select firmed $1.95 this morning. Movement was again light, however, keeping traders on-watch for a top.

A solid start to boxed beef trade bodes well for feedlots in cash trade negotiations, though traders will wait for showlist estimates before forming cash trade opinions.

Technical outlook: April live cattle futures traded in a narrow range that nearly matched the trading range the past two days. Initial resistance is in the $143.50 area, with resistance thereafter layered every 50-cents higher. The bottom of the Feb. 26 upside gap at $142.60 is support.

Feeder cattle

Price action: Feeder cattle futures enjoyed strong gains today and ended high-range. Futures settled $1.32 1/2 to $2.15 higher for the day.

Fundamental outlook: Feeder cattle futures gapped higher on the open, triggering buy stops. A reminder of plentiful feed supplies via today's Supply & Demand Report helped the market settle high-range. Spillover from strong gains in the lean hog market added to the positive tone. The front month is now at a slight premium to the cash index.

Technical outlook: April feeder cattle futures gapped to a new contract high this morning and stayed in that area. Today's high of $175.75 is resistance, followed by $176.00. The bottom of today's gap at $173.75 is support.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering 1st-qtr. and 50% of 2nd-qtr. marketings. The April $144.00 call options that we sold for $1.525 were exercised into a short futures position, meaning we are effectively hedged at $144.20 (the strike price plus the 20 cents we made on the initial sale of these calls compared to what we spent on the puts).

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now, but be prepared to extend coverage on a price break.

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