Livestock Analysis (VIP) -- May 22, 2013

May 22, 2013 09:55 AM


Price action: Lean hog futures extended gains into the close to finish 90 cents to $2.15 higher in the 2013 contracts, with far-deferred contracts up 27 1/2 to 87 1/2 cents.

Fundamental analysis: Early support was tied to improvement in the pork cutout market, which is riding the coattails of the record rise in boxed beef values. Futures extended gains on a tightening supply outlook, although this has not yet transferred to improvement in the cash hog market which has been virtually flat this week. But expectations that demand for cash hogs could improve next week after the Memorial Day holiday gave traders encouragement to extend long positions.

Traders will be keeping a close eye on the pork market, as they gauge retailers' post-Memorial Day featuring plans. June lean hog futures are now trading at around a dollar premium to the cash index to reflect improved attitudes.

Technical analysis: June lean hog futures filled the mid-February gap to complete a 50% retracement of the decline from the December high to the March low. Next resistance is at the 62% retracement level near $96.16. Support lies in a range from $93.60 to $92.70.

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 under pressure and selling mounted as the day progressed. Futures ended just off session lows with losses of 85 cents to $1.15.

Fundamental analysis: Cattle futures opened under profit-taking pressure as the market remains concerned that consumers will not respond well to record-setting boxed beef prices. And selling picked up after midday on reports of light cash cattle sales in Texas at $124, down $1 from the bulk of last week's action in the state but $4 above nearby futures prices. Most had been expecting at least steady trade as the boxed beef market has consistently hit new all-time highs the past few weeks, including today, and packers are enjoying wide margins. Plus, beef movement improved notably this morning.

Strength in the U.S. dollar index added to the negative tone.

Technical analysis: June live cattle traded through and settled steady with psychological support at $120.00 today, with the next significant level of support standing at the contract low of $118.80. Initial resistance is last week's high of $121.40, but the contract needs closes above the May high of $124.00 to signal a reversal is in the works.


Feeder cattle

Price action: Feeder cattle futures extended losses into the close and ended $2-plus lower in all but the front-month, which expires tomorrow.

Fundamental analysis: Spillover from the live cattle market weighed heavily on the feeder futures today as concerns about demand for the feeder cattle persist. Strength in the corn market and U.S. dollar index today added to the negative tone. Also, the May contract expires tomorrow and the soon-to-be front-month August contract is at nearly a $13 premium to the cash index.

Technical analysis: August feeder cattle futures closed yesterday's upside gap, signaling the move was nothing more than a correction. Support remains at the contract low of $142.50, while resistance is layered from yesterday's high of $146.70 to last week's high of $147.47 1/2.

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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