Livestock Analysis (VIP) -- May 16, 2013

May 16, 2013 09:34 AM



Price action: June and July lean hog futures finished with gains of 95 to 70 cents, respectively, to post a mid- to high-range close. The rest of the market ended steady to 40 cents higher to post a low-range close.

Fundamental analysis: Lean hogs remained in positive territory throughout the day as traders responded to rising pork cutout values. But gains were limited as packers' profit margins remain in the red, which is moderating demand for cash hogs. The cash market was mostly steady today and more of the same is expected tomorrow. A few plants are still in need of supplies for next week's schedules, but packer demand has been reduced by negative margins.

June lean hog futures ended the day in line with the cash index, which should limit price action tomorrow as traders even positions ahead of the weekend.

Technical analysis: June lean hog futures posted an inside day of trade on the daily chart and ended mid-range. Futures are working on strong gains for the week, however, as the contract has posted a strong recovery from last Friday's test of uptrending 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: Live cattle futures favored a weaker tone in choppy trade and posted a mid- to low-range close to finish 5 to 25 cents lower.

Fundamental analysis: Pressure on futures was limited by continued strength in the boxed beef market, but the inability of futures to rise with beef prices signals traders don't expect its strength to be long-lasting. Choice beef values rose $1.04 to a new high of $208.99 per cwt. this morning, with Select values up 48 cents. Traders believe demand is being rationed heavily at current prices.

Meanwhile, traders continue to wait on cash cattle trade to begin. Expectations are for steady to firmer trade with last week's $126 trade given strength in the beef market and steady to tighter market-ready supplies. However, a few trades at $125 were reported in the Southern Plains.

Technical analysis: June live cattle futures violated support to post a monthly low of $119.70, making bears' next target last month's contract low of $119.40. Futures need to return above the May high of $124.00 to signal a near-term low has been posted.

Feeder cattle

Price action: Feeder cattle didn't stray too far from unchanged today and closed 5 to 17 1/2 cents lower.

Fundamental analysis: Feeder futures saw spillover pressure from live cattle, but selling was limited by weakness in the corn market and tight calf supplies. Traders are also taking a cautious approach to the market as they prepare for tomorrow's Cattle on Feed Report, which is expected to show Placements above year-ago levels. See "Evening Report" for pre-report expectations.

Technical analysis: August feeder cattle futures gapped slightly lower on the open, filled the gap, but then closed below yesterday's low for a mid-range close. The contract is hovering just above contract-low support of $144.75.

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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