Livestock Analysis (VIP) -- May 15, 2013

May 15, 2013 09:49 AM


Price action: Lean hog futures trended higher through the morning, supported by ongoing pork market strength, but then slumped near noon on the swoon in commodity prices. Futures finished 55 cents to $1.00 lower and near the day's lows with June futures down 67 1/2 cents.

Fundamental analysis: Lean hogs were initially supported by ongoing pork market strength. The pork cutout value rose 70 cents this morning and pork movement was strong in the face of higher prices. This adds weight to ideas high retail beef prices will boost pork demand once the grilling season kicks in for good. Price action suggests the normal seasonal decline in supplies and accompanying strength in pork cutout values and cash prices is underway.

But traders worry any potential setback in retail beef prices could pressure pork prices as well. And the rising dollar has traders concerned about export demand. The front-month contract's failure to probe the Feb. 14 downside gap also led to some technical selling pressure.

Technical analysis: June lean hog futures opened higher and tested the Feb. 14 downside gap starting at $93.40 and running to $94.05. When the market did not trigger buy stops as it probed the gap, it dropped and closed near the day's lows. The June contract has support at the May 10 low of $90.00 and resistance at today's high of $93.50.

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 probed higher in early trading on rising dressed beef prices but then lost ground in sympathy with the general selloff in commodities and rise in the U.S. dollar. Live cattle finished 55 cents to 90 cents lower and near the day's lows.

Fundamental analysis: Choice boxed beef moved substantially higher to a record high of $208.18 this morning, up $2.09. Importantly, movement improved to 144 loads. Meanwhile, cash trade seems to be stymied as feedlots hold out for higher prices than week-ago, while packers have been slow to establish bids. Packers are expected to become a little more aggressive if the record boxed beef price holds given strong margins. Some are calling for the largest slaughter level since mid-December as a result. However, traders continue to worry about consumer demand in the face of record boxed beef prices. In addition, the rising dollar does not bode well for export demand.

Technical analysis: June futures have found resistance at $121.50, Monday's high. If cleared, the $124.00 area would be the next area of resistance. It will take a close about that resistance area to signal a break in the downtrend from the winter highs. The $119.00 area is support.

Feeder cattle

Price action: Feeder cattle slumped 42 1/2 cents to $1.12 1/2 on the decline in live cattle and the strength in the dollar.

Fundamental analysis: A general selloff in commodities pressured feeder cattle today, along with the premium of the August and September contracts have versus the cash market. Feeder cattle futures shrugged off weakness in corn.

Technical analysis: The August contract closed at its lows of the day and just above support at the April 22 low at $144.75. The winter downtrend line provides resistance around $150.00, but it would take a close above the April 1 high of $154.40 to confirm a significant shift in trend.

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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