Livestock Analysis (VIP) -- May 20, 2013

May 20, 2013 09:30 AM


Price action: Lean hog futures spent most of the day in positive territory and most contracts ended around mid-range with gains of 20 to 77 1/2 cents.

Fundamental analysis: The lean hog market came under pressure late Friday on news the porcine epidemic diarrhea virus (PEDV) had been detected in the Iowa hog herd. Today, traders covered some short positions on ideas the downside had been overdone as the virus doesn't present any human health impacts and is not a food safety concern.

Meanwhile, pork prices continue to strengthen and hog supplies are tightening seasonally. This is expected to remain an underlying source of support for both the cash and futures markets. Cash hog bids were mostly steady with a few weaker bids today as packers worked to improve cutting margins.

Technical analysis: June lean hogs saw an inside day of trade and respected psychological support at $91.50. A drop below this level would point the contract toward a test of the May low of $90.00. Renewed buying interest would have bulls eying Friday's high of $93.60.

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 opened slightly lower but rallied into the close to finish 25 to 72 1/2 cents higher in all but the far-deferred contracts, which ended weaker.

Fundamental analysis: Early weakness was tied to followthrough from Friday's losses as well as the bearish Cattle on Feed Report. But realization the report was already factored into prices, especially with June live cattle holding around a $5 discount to last week's cash trade, triggered short-covering.

Cash cattle trade isn't likely until later in the week as both sides keep a close eye on the boxed beef market. This morning Choice beef values rose 45 cents to a new high of $209.96, with Select up $1.45. Movement to start the week at over 100 loads suggests a pickup in demand.

Technical analysis: June live cattle futures tested contract-low support of $118.80 but closed just above Friday's high of $120.10. The contract needs closes above the May high of $124.00 to signal a near-term low is in the works.


Feeder cattle

Price action: May feeder cattle futures ended $1.37 1/2 lower, with the rest of the market recovering after a weaker start to close 85 cents to $1.12 1/2 higher.

Fundamental analysis: Early pressure was tied to spillover from live cattle, but as live cattle firmed, feeder cattle followed. Additional support came from indications of improved calf demand, as Friday's Cattle on Feed Report revealed cattle placed into feedlots above expectations and year-ago levels.

Technical analysis: August feeder cattle futures gapped to a new contract low and extended losses but posted a key bullish reversal. Futures still need to fill in Friday's gap area at $144.70 and post closes above the May 13 high of $147.47 1/2 to signal the market is working on a near-term low.

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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