Livestock Analysis (VIP) -- March 25, 2013

Hogs

Price action: Lean hog futures rallied into the close after facing pressure most of the day. Futures settled 42 1/2 cents to $1.30 higher for the day, with deferred months leading gains. May lean hogs posted a bullish reversal for the day.

Fundamental analysis: Lean hog futures faced pressure most of the day amid concerns about weakness in the pork market that has weighed on the cash market. The pork cutout value has been unable to put in a low and the Cold Storage Report Friday reminded of record-large frozen pork stocks for this time of year.

But ideas the market is due for a seasonal rebound helped to firm prices late in today's session. Steady cash hog bids in some locations thanks to recent wintry weather conditions in some areas of the Plains and western Corn Belt were also helpful. The rebound was especially impressive considering strength in the U.S. dollar index.

Technical analysis: April lean hogs narrowly avoided posting a bullish reversal today. Followthrough buying tomorrow is needed to signal the market is working on a low, but the contract must first trade through psychological support at $80.00. Strong support stands at last week's low of $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 opened slightly higher and saw a fairly muted day of price action, closing 12 1/2 to 30 cents higher.

Fundamental analysis: Futures were supported by Friday's Cattle on Feed Report that reminded the market of the tight supply situation and indicated supplies will tighten considerably by year's end as calf supplies dwindle. The report was especially supportive for deferred futures, although those contracts didn't see a big move today.

Traders are keeping a close eye on the boxed beef market due to concerns that high beef (and gas) prices are curbing demand. This week's cattle showlist is smaller than last week's, which gives feedlots more bargaining power, but boxed beef prices need to signal a near-term low has been posted before packers will feel obligated to raise cash bids.

Technical analysis: April live cattle futures gapped slightly higher on the open, but the contract later filled the gap and even briefly dipped below the $126.00 level before returning to near the session high at the close. To signal a near-term low is in the works, the contract needs to fill in the March 14-15 gap at $127.70.

Feeder cattle

Price action: Feeder cattle futures closed 7 1/2 to 35 cents higher on spillover from live cattle

Fundamental analysis: Feeder futures were able to post slight gains despite strength in the corn market as traders' focus was on Friday's bullish Cattle on Feed Report. The report reminded the market of the tightening supply situation.

Technical analysis: But feeder futures have a lot of work ahead in order to signal a near-term low has been posted. First, April feeders need to fill in the March 14-15 gap at $141.25 and close above the downtrend drawn off January and February highs. The trendline currently intersects near $143.00.

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.