Livestock Analysis (VIP) -- May 23, 2013

May 23, 2013 09:30 AM



Price action: Lean hog futures edged lower after trading in a very narrow range just under yesterday's close. Futures closed 10 to 42 1/2 cents lower in all but the far-deferred contracts that ended mixed.

Fundamental analysis: Futures had a muted reaction to yesterday's bearish Cold Storage Report which showed record-high (for the month) stocks in storage. The market also only moderately reacted to a slight downturn in pork cutout and the slower pork movement. Such action could be related to the Memorial Day holiday weekend. How pork demand fares following the holiday could prove telling.

Packers have seen profit margins improve dramatically this week, but yet demand for cash hogs has been limited. Cash bids were mostly steady again today and similar trade is expected tomorrow.

Technical analysis: June lean hog futures traded in a very narrow range within the upper third of yesterday's sharp upswing which filled a gap left back in February. Today's close is the second above a downtrend line drawn off the Dec. 1 and Dec. 26 highs. The upside target shifts to $96.15. Support lies in a range from $93.60 to $92.70. In addition, an uptrend line ranging from mid-March to now suggests support at around $90.50.

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 higher but slumped through the day, closing on the lows of the day with losses of 45 cents to $1.02 1/2.

Fundamental analysis: Demand concerns dominated trading today as Choice beef prices posted another record high but cash cattle trade in the Southern Plains traded near $124, down $1 from last week. While Choice beef moved 15 cents higher this morning, Select beef declined 54 cents and movement was very slow, adding to concerns about demand following the Memorial Day holiday.

Technical analysis: Futures attempted to move higher but then slumped to life-of-contract low closing prices in the nearby contracts. June futures finished just slightly above contract-low support at $118.80. The weekly chart offers support at $118.40. If penetrated, the next downside target would be weekly chart support at $111.55. The $120 area has become initial resistance.


Feeder cattle

Price action: Feeder cattle futures fell sharply lower to close near the lows of the day. Futures ended $1.67 1/2 to $1.77 1/2 lower, with May expiring steady.

Fundamental analysis: Slumping live cattle futures coupled with a rise in corn futures pressured feeder cattle prices. The lead May futures contract expired at noon today, even with the cash index. That made the August contract the lead contract. Traders immediately reacted negatively to the August contracts $11-plus premium to the cash index.

Technical analysis: August futures became the lead contract at noon when May futures expired. August futures slumped to a new contract low, but that closing price is still about $10 above the close for the May contract. That makes the $132 area the downside target for August futures with this week's high around $146 upside resistance.

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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