Livestock Analysis (VIP) -- May 17, 2013

May 17, 2013 09:26 AM
 

Hogs

Price action: Summer-month lean hog futures posted losses of 75 cents to $1.57 1/2 today, while October hogs were 25 cents lower and farther deferred contracts were steady to firmer. For the week, hog futures posted modest gains.

5-day outlook: With today's price action, summer-month lean hog futures moved to a discount to the cash hog index. That suggests traders sense the product market may be nearing a top and that packers could pull back on cash hog bids next week. If the cash and product markets remain supported, a round of short-covering could be seen.

30-day outlook: Domestic demand should be strong as pork prices are cheap compared to beef. And retailers have been actively buying pork, suggesting they are planning a round of summer pork features.

90-day outlook: If there is a reason to be concerned with demand, it's on exports. A sluggish global economy and rising dollar could curb demand for U.S. pork. But the process with Russia to certify shipments of U.S. pork as ractopamine-free is underway. When that's finalized, it should improve pork export demand prospects.

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 the week under pressure and posted sharp losses for the week. August live cattle ended the week $2.22 1/2 lower than last week's close and posted a contract low to do more technical chart damage. Feeder cattle also posted sharp weekly losses.

5-day outlook: Nearby live cattle ended the week at a $5 to $6 discount to this week's cash market and futures have moved into oversold territory. Meanwhile, Choice boxed beef values soared this week but movement slowed, raising questions about demand. Bears hold the upper hand heading into next week, especially since the Cattle on Feed Report showed more cattle than expected were placed into feedlots last month.

30-day outlook: Dressed cattle weights declined by 3 lbs. this week and are now 1 lb. lighter than year-ago to further tighten the supply situation. Total year-to-date beef production is running 1.2% below year-ago and USDA currently expects beef production to be down 3.1% in 2013 compared to last year. As supplies tighten through the year, futures should find a floor of support from which to rally.

90-day outlook: USDA once again lowered its 2013 beef export forecast in the May Supply & Demand Report to reflect the slowdown in global demand. Recent strength in the U.S. dollar index further heightens demand concerns, especially since the Japanese yen has weakened considerably.

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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