Livestock Analysis (VIP) -- March 6, 2013

March 6, 2013 08:51 AM
 

Hogs

Price action: Lean hog futures faced heavy pressure early this morning, but the market finished at or near session highs. Futures ended steady to 72 1/2 cents lower for the day.

Fundamental analysis: Lean hog futures were initially pressured by strength in the U.S. dollar index, spillover pressure from the cattle market and yesterday's steep decline in the pork cutout value. But the market pared losses as cash hog bids came in a bit better than expected at mostly steady prices as packers bought a few additional loads for this week's kill that is expected to be up 2.5% from year-ago and for next week's needs. Also encouraging was strong pork movement yesterday and this morning, which may signal pork prices have found "value" levels.

The market also benefited from news Canada's hog inventory declined 0.5% from year-ago levels as of Jan. 1, according to Statistics Canada.

Technical analysis: April lean hogs hit a new contract low of $78.25 today, before rebounding and settling high-range and even with yesterday's close. Today's low marks solid support, whereas near-term resistance is the psychological $80.00 mark. The contract needs closes above the June low of $82.25 to signal a seasonal low is in place.

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 trimmed losses into the close to finish 35 cents to $1.00 lower.

Fundamental analysis: Futures gapped lower on the open on followthrough from yesterday's bearish reversal, with additional pressure coming from news that cash cattle trade was getting underway at steady prices with last week at $128 in Kansas and Texas. Additional cash trade at this level is expected tomorrow and April live cattle ended the day at an 80-cent premium to the cash market.

Meanwhile, boxed beef prices continue to surge, which is lifting packers' profit margins. Choice values were up $2.08 this morning and Select rose $3.28. But beef movement has been lackluster this week, which raises concerns values have risen too far too fast.

Technical analysis: April live cattle gapped lower on the open and sharply extended losses to violate support at the February low of $127.50 before short-covering lifted futures in late trade. The contract came within 5 cents of filling this morning's gap. Bulls have a lot of work ahead to improve the technical situation, as bears' next target is the contract low of $125.90.

 

Feeder cattle

Price action: Feeder cattle futures saw spillover from live cattle and gapped sharply lower on the open. Futures trimmed losses to end 82 1/2 cents to $1.67 1/2 lower.

Fundamental analysis: Despite sharp weakness in the corn market, feeder cattle futures remained under pressure, though futures did trim initial losses. March feeder futures are trading at around a $1 premium to the cash index, which opens additional near-term downside risk for nearby contracts.

Technical analysis: April feeder cattle futures gapped to a fresh contract low and extended losses, making today's low of $141.25 initial support. Futures trimmed losses but still left a 97 1/2-cent gap open. Resistance begins at the top of today's gap at $143.57 1/2 and extends to last week's high of $146.07 1/2.

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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