Livestock Analysis (VIP) -- March 3, 2014

02:57PM Mar 03, 2014
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Price action: April lean hog futures ended $1.82 1/2 higher, with May and June up 15 and 52 1/2 cents, respectively. Deferred futures favored a weaker tone amid bull spreading.

Fundamental analysis: April lean hogs surged to a new high of $109.70 today on strength in the cash market and uncertainty about the impacts of PEDV on marketings through the summer. Nearby futures moved off session highs amid some profit-taking given the overbought situation of the market, but solid demand for cash hogs limited pressure for those contracts.

Traders will be keeping a close eye on the pork market this week as it surged last week and was down 29 cents this morning. As long as packer margins remain in the black, demand for cash hogs should remain strong this week as frigid temps are slowing weight gain and interfering with marketings.

Technical analysis: May lean hog futures posted a contract high of $112.20 and trimmed gains into the close, but technicals remain bullish. However, traders could decide at any time to take profits out of the market as the contract is posting a reading of 94% on the 9-day Relative Strength Index. A reading of 70% or more signals a time or price correction is due. The contract could correct to the $110.00 level and remain within the boundaries of steep uptrend.

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

Feed needs: Profits on the 1st-qtr. meal hedges have been claimed. Carry all corn-for-feed and meal risk in the cash market for now.


Live cattle

Price action: April live cattle futures ended 85 cents lower, with the rest of the market ended 45 to 70 cents higher. The April contract closed low-range but the June and later contracts finished at or near their daily highs.

Fundamental analysis: Traders took profits in the lead April contract today as they assessed likely direction for cash cattle trade later this week. However, the substantial discount of June and later futures contracts to last week's record-high cash trade lifted those contracts. The April contract holds a $6 discount to last week's $150 cash trade in the Southern Plains.

Meanwhile, this week's winter storm is again limiting feedlot gains and restricting movement. Traders are awaiting an update on showlists estimates for this week. The dressed market again moved higher with gains of more than $3 and $4, respectively, in Choice and Select beef. Movement is not impressive, but it is not sharply lower, which provides support.

Technical analysis: April futures moved lower on profit taking shortly after opening even with Friday's close. Futures traded lower through the day but found support under $144.00, about even with Friday's low. The upside gap area left Feb. 26 from $142.60 to $143.30 still serves as a downside target on a setback. The contract high at $146.00 is resistance.


Feeder cattle

Price action: Feeder cattle futures traded lower through much of the day but rallied to close unchanged to 15 cents higher, finishing at or near their highs for the day.

Fundamental analysis: Strength in the U.S. dollar and a strong surge in corn and wheat futures had feeder cattle futures on the defensive through much of the day. But feeders turned higher as the June and later live cattle futures firmed.

Technical analysis: April feeder cattle futures gapped lower on the open and extended losses, but filled the gap. Today's low at $171.50 is support with the contract high at $174.70 serving as resistance.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering remaining 1st-qtr. and 50% of 2nd-qtr. marketings and are short the same number of April $144.00 call options at $1.525.

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.