Livestock Analysis (VIP) -- March 7, 2013

March 7, 2013 08:59 AM
 

Hogs

Price action: Lean hog futures gapped higher on the open and enjoyed strong gains throughout the session, ending $2.55 to $2.77 1/2 higher through the July contract, while far-deferred months finished with gains of $1.47 1/2 to $1.95. This was at or near session highs.

Fundamental analysis: Weakness in the U.S. dollar index along with the technically oversold condition of the market gave lean hog futures an early boost. Traders then extended these gains after a few packers paid up for cash hogs, whereas just steady bids had been expected.

Slaughter rates are above year-ago levels and the market anticipates Easter ham buying will soon give the pork market a boost. Movement has recently been strong, but the pork cutout value continues to slide. Until the pork market puts in a low, buying interest will be limited to short-covering.

Technical analysis: April lean hog futures posted an impressive rebound today and the high-range close signals followthrough buying may be ahead. But the market still has a ways to go to signal a low is in place. The contract came within a dime of near-term resistance at $82.25 today. A move through that level would point the contract toward a test of 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: April live cattle settled low-range and 50 cents lower for the day, while the rest of the market settled mid- to high-range with gains of 30 to 55 cents.

Fundamental analysis: The front-month contract saw some light selling into the close as traders worked to bring it in line with yesterday's cash trade at mostly $128. Cash trade is now thought to be largely complete in Texas and Kansas, though additional sales are expected in Nebraska. Steady cash prices relative to the week prior were lower than many had expected given this week's surge in boxed beef prices.

Choice and Select cuts continued on their upward path this morning, which helped pull packer profit margins into the black for the first time in half a year. Bullish enthusiasm about the beef rally is being limited by relatively light movement, however, as this signals some resistance to higher prices.

Technical analysis: April live cattle futures saw an inside day of trade and settled low-range. Followthrough selling tomorrow would have bears eyeing yesterday's 10-month low of $127.30. Resistance is layered from the January double-bottom of $129.45 to Tuesday's high of $130.80.

 

Feeder cattle

Price action: Feeder cattle futures saw two-sided trade today and ended 45 cents lower in the March contract with the rest of the market 35 to 70 cents higher. This was around a mid-range close for most contracts.

Fundamental analysis: Choppy action in the corn market led to the similar action in feeder cattle futures, though bulls had the advantage much of the day. Spillover from lean hogs as well as the market's technically oversold condition also encouraged some short-covering today. Dollar weakness was also encouraging to this end. Pressure on the front-month stemmed from the slight premium it holds to the cash index.

Technical analysis: April feeder cattle futures made a dent in Wednesday's wide downside gap today, but it came 20 cents short of closing the gap. Thus, resistance remains at Tuesday's low of $143.57 1/2. Yesterday's contract-low is strong support at $141.25.

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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