Livestock Analysis (VIP) -- March 27, 2013

March 27, 2013 09:39 AM
 

Hogs

Price action: April lean hog futures posted a bullish reversal today and ended 57 1/2 cents higher for the day. The rest of the market finished high-range with losses of 25 to 55 cents.

Fundamental analysis: Pork demand concerns weighed on lean hog futures most of today's session, but another day of steady to higher cash hog bids encouraged some corrective short-covering ahead of the close as traders are hopeful a seasonal low is in the works. This cash market strength signals packers were not as well supplied as earlier thought for near-term needs. It is also indicative of tightening cash market supplies and that packers may be upping kill runs to take advantage of profitable margins.

But until the pork market gives solid signs it has put in a low, upside potential will remain limited to short-covering. Pork movement picked up yesterday, but prices slid.

Technical analysis: April lean hogs posted an impressive bullish reversal for the day and settled above the psychological $80.00 mark, turning that level into near-term support. The next level of resistance is the March high of $82.25.

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 rallied into the close to finish $1.22 1/2 to $1.82 1/2 higher.

Fundamental analysis: Futures found early support from news of steady cash cattle trade in Texas at $125 yesterday, as traders had anticipated lower trade due to ongoing weakness in the boxed beef market. Futures extended gains on anticipation of follow-up trade of at least steady if not $1 to $2 higher due to smaller showlists. Traders also have last week's Cattle on Feed Report on their minds, which provides bulls with some momentum as the supply situation is only going to get tighter as we move through the year.

April live cattle are trading at around a $2 premium to the start of this week's cash trade, which is another signal that traders view the worst in terms of demand is behind.

Technical analysis: April live cattle posted a high-range close and tested the bottom of the March 14-15 gap area $127.40. The top of the gap is at $127.70. Futures need to clear the downtrend drawn off the January and February reaction highs, which currently interests around $128.00, to signal a near-term low is in the works. Contract-low support lies at $124.75.

 

Feeder cattle

Price action: March feeder futures closed 42 1/2 cents higher ahead of tomorrow's noon CT expiration, with the rest of the market seeing strong spillover from live cattle and finishing $1.40 to $1.80 higher.

Fundamental analysis: Feeder cattle futures followed live cattle higher today, with additional support coming from the tightening calf situation. But the market still has its work cut out for it to signal a low has been posted -- especially with corn prices returning to the top of the long-lasting choppy, consolidation range.

Technical analysis: April feeder cattle futures gapped sharply higher on the open, trimmed gains but returned higher for the session-high close. A 25% retracement of the decline from the January high to last week's low puts initial resistance at $142.11. Moving above that level would suggest a near-term low has been posted, but confirmation of a low would come on closes above the 38% retracement level near $145.00.

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.

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