Livestock Analysis (VIP) -- May 14, 2013

May 14, 2013 09:55 AM


Price action: Lean hog futures got off to a choppy start, but the market firmed as the day progressed. Futures ended high-range with gains of 30 cents to $1.67 1/2. The May contract expired 7 1/2 cents higher today at $92.00.

Fundamental analysis: Strength in the cash hog and pork product markets today encouraged buying in the lean hog complex. A $1.42 surge in the pork cutout value this morning along with solid movement indicates Memorial Day buying may not yet be wrapped up. Warmer temps this week are also expected to improve grilling demand.

Plus, tightening supplies resulted in packers paying steady to higher prices for market-ready hogs. Seasonally tightening supplies were even harder to come by due to a heatwave across the Midwest today, which stresses hogs and makes producers less willing to market hogs. Not to mention, many producers are hurrying to plant corn before the window of dry weather closes.

Technical analysis: June lean hogs posted a strong upside day of trade, but the contract stopped short of challenging the May high of $93.10. A move through this level would open upside potential to the top of the Feb. 14 downside chart gap at $94.05. Friday's low of $90.00 marks strong near-term support.

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: June live cattle futures ended 20 cents higher, while deferred contracts were steady to 47 1/2 cents lower.

Fundamental analysis: With demand concerns continuing to hang over the cattle market, buying interest remains limited to light corrective buying despite the big discount summer-month live cattle futures hold to the cash market. A surge in boxed beef movement or exports is needed to ease those concerns. Unfortunately, with Choice boxed beef prices moving to a new high this morning and Memorial Day buying virtually complete, prospects for a sharp pickup in beef demand aren't overly strong.

Cash cattle trade is still relatively uncertain as initial bids have not yet been established. Given strong packer margins, traders are hopeful they will raise cash cattle bids from last week's mostly $126 trade in the Plains. But with the Cattle on Feed Report out Friday afternoon, packers may be in no hurry to actively bid for cash cattle.

Technical analysis: The downtrend from the winter high remains firmly intact for June live cattle futures. To give any indication of an extended correction, the contract must clear the downtrend and close above the last reaction high at $124.00.

Feeder cattle

Price action: May through September feeder cattle finished higher, while farther deferred contracts favored a weaker tone on the close.

Fundamental analysis: A lack of active followthrough buying in the corn market today allowed nearby feeder cattle futures to work higher amid corrective short-covering today. But the big premium the August and September contracts hold to the cash market and a lack of buying in live cattle limited buying interest.

Technical analysis: August feeder cattle futures are trading at levels that have encouraged a pickup in buying interest in the recent past, suggesting a short-term low is close at hand. But the contract must push above the April 1 reaction high at $154.40 to signal a sustained price recovery is underway.

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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