Livestock Analysis (VIP) -- March 21, 2013

March 21, 2013 09:39 AM
 

Hogs

Price action: Lean hog futures started the day mixed but firmed into the close amid ideas recent losses are overdone. Futures ended 47 1/2 cents to $1.25 higher.

Fundamental analysis: Spillover from live cattle as well as ideas the downside has been overdone lifted lean hog futures today. But demand concerns continue to limit upside potential. Pork cutout values slid sharply this week to tighten packers' profit margins -- keeping the cash market pointed lower into next week.

April lean hog futures extended the premium to the cash index today to more than $2.00. This suggests traders believe the market is working on a near-term low. But before traders aggressively rebuild long positions, they will want to see improvements to pork demand.

Technical analysis: April lean hog futures posted an upside day of trade on the daily chart but the contract has a lot of work ahead in order to signal it has posted a near-term low. The contract needs to post at least a 25% retracement of the decline from the November high to signal a near-term low is in the works. That resistance stands at $80.85. Contract-low support lies at $76.90.

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.

 

Live cattle

Price action: Live cattle futures settled mid- to low-range with gains of 7 1/2 to 37 1/2 cents.

Fundamental analysis: Ideas the downside has been overdone supported the live cattle market today. Otherwise, buying interest was limited. Boxed beef prices fell again this morning, though this did encourage strong movement. This resulted in additional cash cattle trade at $125, which is around $2 below the bulk of last week's trade and more than a buck below the front-month contract.

Traders also remain hopeful that spring grilling will soon give the product market a boost, though chilly temps forecast for next week signal this seasonal trend will begin later than usual. Traders are also readying positions for the Cattle on Feed Report that is expected to show all categories well below year-ago levels (see Evening Report for details).

Technical analysis: April live cattle posted an upside day of trade, but the contract must close last week's downside gap at $127.70 to signal a low is in place. Yesterday's contract low of $124.75 is strong support.

Feeder cattle

Price action: Feeder cattle futures traded sharply higher at times today, but the market moved well off those levels into the close. Futures ended 5 cents to $1.45 higher for the day, with deferred months leading gains.

Fundamental analysis: Corrective short-covering encouraged by early weakness in the corn market triggered some buy stops. In addition, the market believes the downside has been overdone, especially considering tight supply prospects for the year-ahead. Traders also focused on readying for the Cattle on Feed Report tomorrow, which is expected to reflect lower Placements than year-ago due to tight calf supplies and high grain prices.

Technical analysis: Resistance for April feeder cattle futures is layered from the psychological $140.00 mark to the top of the March 15 downside gap at $141.25. Yesterday's contract low of $136.77 1/2 remains strong support.

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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