Livestock Analysis (VIP) -- May 13, 2013

May 13, 2013 09:30 AM



Price action: May lean hog futures closed 7 1/2 cents lower today, while most of the other contracts were slightly firmer.

Fundamental analysis: With May hogs expiring tomorrow, traders won't let the contract stray far from the cash index. As a result, another quiet day of trade is likely in the lead-month contract tomorrow.

Traders mildly narrowed the discount summer-month contracts hold to the cash market today. While packers are cutting in the red and may lower cash hog bids in an attempt to improve margins near-term, tightening market-ready supplies should keep the cash market supported into mid-summer. As a result, downside risk should be limited for summer-month lean hog futures unless the cash market doesn't perform as expected.

Technical analysis: June lean hog futures are working on a series of higher lows and higher highs since the March low. For that pattern to hold, the contract must push above the May 2 high at $93.10.

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.



Live cattle

Price action: Live cattle futures gapped higher on the open, but the market later pared gains and ended narrowly mixed for the day with summer- and fall-month contracts firmer.

Fundamental analysis: Nearby futures contracts remain at a major discount to last week's mostly $126 cash cattle trade and Choice boxed beef prices remain at near-record levels above the $200 mark. This is giving bulls a slight edge, though a lack of urgency to narrow the wide gap futures hold to the cash market signals demand concerns remain close at hand.

Showlist estimates are down this week and packers are enjoying the strongest gains since late-August 2012, which could bode well for firmer cash trade this week if the boxed beef market avoids a collapse.

Technical analysis: June live cattle posted a modest gain for the day, but the contract must rise above the May high at $123.35 to signal a potential reversal is underway. Support remains at the contract low of $119.40.

Feeder cattle

Price action: Feeder cattle futures got off to a firmer start, but the market softened as the day progressed and ended 17 1/2 to 52 1/2 cents lower.

Fundamental analysis: Feeder cattle futures initially benefited from spillover support from live cattle and ideas the downside has been overdone. But this eventually gave way to selling as the corn market surged. Adding to the negative tone is the $11-plus premium the soon-to-be-front-month August contract holds to the cash index.

Technical analysis: August feeder cattle futures gapped higher on the open, but later filled the gap and ended with losses for the day. Near-term support is at last week's low of $145.20, followed by the contract low of $144.75. The contract must move above the April 25 high of $152.17 1/2 to signal at least a short-term 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: All feed coverage has been lifted. Carry all risk in the cash market for now.


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