Livestock Analysis (VIP) -- March 1, 2013

March 1, 2013 08:56 AM
 

Hogs

Price action: Lean hog futures closed mixed today, with all but the summer-month contracts slightly higher. Nearby lean hog futures modestly extended the steep downtrend due to continued weakness in the cash hog market this week, while deferred contracts posted slight corrective gains for the week.

5-day outlook: This week brought sharp improvement to packer margins, yet packer demand for cash hog supplies remained lackluster. Packers had no trouble securing needs this week despite a winter storm that brought travel disruptions to a broad area of the Corn Belt. With packers bought ahead on slaughter needs for next week, demand for cash hogs will remain light early next week.

30-day outlook: Uncertainty surrounding the impacts of government sequestration to the meat industry is weighing on lean hog futures. Government cutbacks are creating a lot of uncertainty surrounding the economic impacts to consumers and to meat inspected for export. Until more is known on this situation, traders will be hesitant to reestablish long positions.

90-day outlook: USDA will update its Supply & Demand projections next week, which include updates to meat production and demand. It's expected that USDA will trim its export projection, which could lower its projected 2013 cash hog projection.

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

Feed needs: Profits have been claimed on 1st-qtr. feed coverage that was held in March corn and meal futures. 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4 and 25% of 2nd-qtr. protein needs are covered in long July soymeal futures at $388.00.

 

 

Cattle

Price action: April and June live cattle futures closed 10 and 15 cents higher, respectively, while other contracts were 2 1/2 to 45 cents lower today. Nearby futures led a corrective price recovery for the week.

5-day outlook: Feedlots are still trying to dig out from this week's winter storm through the Plains. It will take time for cattle to regain weight lost during the storm, which should keep cattle futures and the cash cattle market on an upward path next week. Until demand concerns ease, however, the upside is somewhat limited.

30-day outlook: There are concerns the sequester cuts will negatively impact meat inspections and therefore, exports. But this seems to be a lot of grandstanding by the Obama administration. We don't expect significant impacts on beef demand, especially longer-term.

90-day outlook: Once the demand concerns are eased, focus will return to tight supplies. With cattle supplies tight -- and tightening -- the long-term price outlook for cattle is bullish.

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: Profits have been claimed on 1st-qtr. feed coverage that was held in March corn and meal futures. 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4 and 25% of 2nd-qtr. protein needs are covered in long July soymeal futures at $388.00.

 

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