Livestock Analysis (VIP) -- May 1, 2013

May 1, 2013 09:27 AM


Price action: May through October lean hogs ended at or near session highs with gains of 7 1/2 to 80 cents. Far-deferred contracts ended high-range but with slight losses for the day.

Fundamental analysis: Packers in need of additional supplies for this week's kills paid higher prices for seasonally tightening hog supplies today. Supplies are even harder to come by due to the recent increase in fieldwork activity and a late winter storm event in northern locations. Packers are increasing production amid ideas grilling demand will keep the product market pointed higher.

The pork cutout value rose $1.43 this morning and movement picked up to 318.8 loads. Recent product market strength signals retailers expect cost-conscious consumers to throw more pork on the grill this spring/early summer.

Technical analysis: June lean hog futures posted an upside day of trade, but the contract failed to break through near-term resistance at Monday's high of $93.07 1/2, after which resistance stands at the top of the February 14 downside gap at $94.05.

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 ended 30 to 65 cents higher, but that was only good for a mid-range close.

Fundamental analysis: A strong surge in boxed beef prices this morning fueled buying interest throughout the day in live cattle futures. But the late trimming of gains signals traders still have concerns about the long side of the market despite the big discount summer-month contracts hold to the cash market.

After this morning's $2.51 surge, Choice boxed beef prices are closing in on the all-time high posted in late October 2012. While beef movement remains sluggish, the higher boxed beef prices have improved packer margins, giving them some incentive to more actively pursue cash cattle. As a result, it appears more likely cash cattle will trade steady to higher compared with the mostly $128 trade in Kansas and Texas last week.

Technical analysis: To spark active chart-based buying, June live cattle futures must close above the last reaction high at $124.50. Until that happens, price action is likely to be choppy. Contract-low support is at $119.40.


Feeder cattle

Price action: Feeder cattle ended narrowly mixed with the May and August contracts slightly lower while other contracts were slightly higher.

Fundamental analysis: A firmer tone in live cattle and a mostly weaker tone the corn market encouraged light short-covering in feeder cattle. But the May and August contracts saw gains dissipate late given the premium these contracts hold to the cash index.

Technical analysis: May feeder cattle continue to hover above the contract low at $138.25. To spark a corrective rebound, last week's high at $142.25 must be cleared. To signal a potential trend change the April high at $147.70 must be cleared.

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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