Livestock Analysis (VIP) -- March 20, 2014

March 20, 2014 10:02 AM


Price action: April lean hog futures ended 65 cents higher, which was just off session lows, with the May through July contracts ending 40 cents to $1.45 lower. Far-deferred contracts ended 2 1/2 cents to $2.75 higher.

Fundamental outlook: Hog futures were highly choppy today, with gains giving way to profit-taking in various contracts. Front-month April futures gapped higher on the open and extended gains to an all-time high of $126.30, but that led to profit-taking given the severely overbought condition of the market and the premium it holds to the cash index, which is at $118.46.

Pressure on futures was limited by strength in the cash market, which continues to surge this week due to tighter-than-expected slaughter supplies. Week-to-date slaughter is running 4.4% below year-ago and is 10,000 head below last week at this time.

Technical outlook: June lean hogs posted a slight downside day of trade on the daily chart as the contract ended near session lows. The low-range close gives bears more momentum heading into tomorrow's open, but the contract needs to fill the gap around the $128.00 level to signal the market is working on a high. Contract-high resistance is at $133.40.

Hedgers: 50% of expected 2nd-qtr. hog marketings and 50% of expected 3rd-qtr. hog marketings are covered in $126.00 June lean hog put options for $3.90.

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now.


Live cattle

Price action: April through February live cattle futures posted key bearish reversals on the day and ended $1.60 to $2.07 1/2 lower, which was just off session lows.

Fundamental outlook: Fund liquidation and profit-taking after the move to new contract highs weighed heavily on the cattle market today. The uptrend of the market remains intact, but followthrough pressure tomorrow could break uptrending support. Pressure also stemmed from a pullback in the boxed beef market the past few days, though this did spur strong movement when one considers prices are still near record highs.

Traders brushed off the start of light cash cattle trade at $2 higher prices of $150 on the Southern Plains, signaling they believe a cash market top is also near. April live cattle are more than $5.50 below these prices.

Technical outlook: April live cattle hit a contract high of $146.92 1/2 before sharply reversing course. This is initial resistance. But bears will have the upper hand after today's bearish reversal. Uptrending support drawn off the late December and February lows intersects around $143.50 tomorrow.


Feeder cattle

Price action: Feeder cattle futures also posted bearish reversals for the day and ended just off session lows with losses in excess of $2.00 in all but the March contract, which closed 77 1/2 cents lower.

Fundamental outlook: Heavy losses in the live cattle market encouraged profit-taking in feeder cattle futures as well. Strength in the U.S. dollar index added incentive for traders to lighten long positions. The Cattle on Feed Report to be released Friday added incentive for some traders to trim their long exposure to the market.

Technical outlook: April feeder cattle futures posted a bearish reversal today. Bears would initially target the bottom of the March 11 upside gap at $173.75. Contract-high resistance stands at $178.00.

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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