Livestock Analysis (VIP) -- March 4, 2014

March 4, 2014 08:54 AM


Price action: Lean hog futures finished up the $3.00 daily limit in the April through August contracts, while the October and December 2014 contracts finished $2.25 to $1.50 higher, respectively.

Fundamental analysis: Hog futures started firmer. The contract later moved up the daily limit and remained there through the remainder of the trading session. Rising concerns over reduced hog supplies due to the continuing spread of PEDV swept the market higher. Meanwhile, traders shrugged off news Russia now wants more guarantees before it will lift its ban on U.S. pork imports. The country had previously said it would lift the ban March 10.

Cash hogs continue to firm as packers cut in the black and numbers are reduced due to difficult weather conditions from recent storms. Wholesale prices have firmed and continue to benefit from the rise in beef prices. However, the pork cutout did slip somewhat this morning, by 82 cents, but movement was a moderate 166.68 loads. Today's estimated hog slaughter was constricted at 409,000 head, down from 416,000 head last week and 426,00 head a year ago.

Technical analysis: April futures soared limit higher, turning the price trend into a steep rise. The chart pattern gives no indication of topping action other than the nature of the upswing itself. But such upbursts frequently end as dramatically as they begin. Futures are obviously overbought and due for a correction. The Feb. 27 upside gap from $101.57 1/2 to $103.07 1/2 serves as a downside target.

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: Live cattle futures closed $1.45 to $2.10 higher in the 2014 contracts, with far-deferreds seeing lighter gains. Futures posted a high-range close.

Fundamental analysis: Futures were supported by tighter market-ready supplies and strengthening beef values, which is a recipe for higher cash cattle trade. While packers are likely to drag their heels in raising cash steer bids this week, feedlots will demand higher prices for shrinking supplies. Cash negotiations may drag on until late in the week after packers paid a record $150 for cattle in the Southern Plains last week.

Traders are keeping a close eye on beef demand as values continue to soar. This morning, Choice beef values rose $1.58 and Select rose $1.33 on decent morning movement.

Technical analysis: April live cattle futures posted a new high of $146.20 today and while finishing off the session high, the contract still posted a contract-high close of $145.62 1/2. Support lies within last week's gap area between $142.60 and $143.30. But the contract could correct to uptrending support drawn off December and February reaction lows without doing any serious chart damage. The uptrend currently intersects near $142.00.


Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and ended $1.12 1/2 to $1.42 1/2 higher on help from strength in live cattle futures.

Fundamental analysis: Feeder futures were supported today by tightening supplies and spillover from strength in live cattle and lean hog futures. Feeders rallied despite strength in the corn market. March feeders ended the day at around a $1.50 premium to the cash index.

Technical analysis: April feeder futures gapped higher on the open and extended gains to post a contract high of $174.90 and then returned to near its opening level and kept a wide gap open. Bulls clearly remain in control of this market and futures could correct to around the $169.00 level without violating the uptrend drawn off the September and February lows.

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.

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