Livestock Analysis (VIP) -- May 10, 2013

May 10, 2013 10:20 AM
 

Hogs

Price action: Most lean hog futures contracts gapped lower on the open. Though some contracts ended high-range, the market still posted losses of 7 1/2 to 60 cents for the day in all but the May contract, which was steady. For the week, the market posted hefty losses.

5-day outlook: The pork cutout value improved the latter half of this week, but as packers have been paying up for tightening supplies of market-ready hogs, their margins remain buried in the red. This weighed on the cash market and futures today and the same could hold true next week unless the product market strengthens.

30-day outlook: Downside risk over the next month will likely remain limited as temps warm up and consumers fire up the grill while supplies tighten. Also, with the economy still in relatively tough shape, traditional beef grilling holidays could show consumers throwing more relatively inexpensive pork on the grill than usual.

90-day outlook: From a long-term perspective, the pork market is a bit uncertain. Today, USDA cut its 2013 export projection by 177 million pounds. But countering this is news China plans to stockpile pork in state reserves to stabilize domestic prices. Plus, the country will eventually need to replace protein supplies after widespread poultry culling due to the bird flu situation. Both efforts could point to higher pork imports by China.

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

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.

 

 

Cattle

Price action: Live cattle futures ended slightly higher in all but the front-month June contract today. Futures posted sizable losses for the week.

5-day outlook: Price action in live cattle suggests traders fear the runup to record highs in Choice boxed beef won't last long and signals demand remains a concern. With those concerns hanging over the market, the upside is limited to corrective buying despite the big premium summer-month futures hold to the cash market.

30-day outlook: Fortunately, tight cattle supplies limit downside risk for the cattle market. But even with that being the case, this support is seemingly losing some of its grip as the weekly and monthly charts are showing a breakdown of long-term uptrends.

90-day outlook: Given demand concerns, the summer grilling season is key for the cattle market. Unfortunately, beef is at a competitive price disadvantage to pork and chicken. Beef must outperform expectations during the traditional "beef" holidays of Memorial Day, Father's Day and the Fourth of July to ease the demand concerns.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.

 

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