Livestock Analysis (VIP) -- March 5, 2013

March 5, 2013 08:53 AM
 

Hogs

Price action: Early short-covering gave way to fresh selling in the lean hog pit as traders' focus remains on concerns surrounding pork demand. Lean hogs closed 40 cents to $1.22 1/2 lower and near session lows.

Fundamental analysis: Despite some scattered $1-higher cash hog bids across the Corn Belt today due to weather-induced marketing disruptions, lean hog futures drifted lower amid demand concerns. With around one-quarter of U.S. pork production sent into export channels last year, traders are concerned losing sales to Russia and China because of requirements shipments be certified ractopamine-free will result in a build in pork supplies. In addition, traders are concerned U.S. consumers will pull back spending due to growing uncertainties about the impacts of budget cutbacks and tax increases.

Meanwhile, packers are not concerned about securing near-term supplies. In fact, weight data suggests producers are pulling animals forward. If this is realized, it would result in a marketings hole possibly beginning late this month and into April.

Technical analysis: April lean hog futures dropped to a fresh contract low of $79.10 and posted a low-range close. While the contract is severely oversold according to the 9-day Relative Strength Index, it holds just over a dollar premium to the cash index, which suggests there is more near-term downside price risk. Support is now layered every 50 cents lower beginning at $79.00. To signal a near-term low has been secured the contract needs to return above the September low of $84.07 1/2.

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 finished with losses of 67 1/2 cents to $1.07 1/2, which was in the lower portion of today's range.

Fundamental analysis: Live cattle futures were higher for much of the morning, but buying interest dried up ahead of midday amid ongoing demand concerns. Morning boxed beef trade again showed strong price gains, but movement remains light, signaling retailers are showing resistance to high beef prices.

Cash cattle negotiations have yet to get started as packers haven't established initial bids. Feedlots are hoping to get firmer prices compared with last week's $128 trade in the Plains. But traders' unwillingness to move futures too far in front of last week's cash trade signals they aren't overly confident in higher cash prices.

Technical analysis: Bearish reversals were posted in most live cattle contracts today. If that leads to followthrough selling tomorrow, it would suggest the short-term correction is complete and futures may drop to test the February lows.

 

Feeder cattle

Price action: Feeder cattle futures ended 77 1/2 cents to $1.55 lower, which was on or near session lows.

Fundamental analysis: Feeder cattle were mixed this morning, but as buying interest dried up in the live cattle market, feeders dropped. Strength in the corn market helped pressure feeders.

Technical analysis: April feeder cattle futures are consolidating just above the February low on the daily price chart. The contract must close above the January double-bottom at $147.25 to signal a low is in place.

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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