Livestock Analysis (VIP) -- May 24, 2013

May 24, 2013 09:48 AM
 

Hogs

Price action: Lean hog futures got off to a choppy start but the market firmed as the day progressed. Futures ended high-range with gains of 27 1/2 to 67 1/2 cents. The market posted strong weekly gains.

5-day outlook: Traders will watch the pork market closely for signs of weekend clearance and whether retailers plan to feature pork for summer grilling. Packers will likely be in need of supplies following downtime for Memorial Day.

30-day outlook: Supplies are tightening seasonally, which should keep the cash market supported. Also, there are good chances the pork demand will benefit from a record-setting rally in boxed beef prices this summer grilling season as pork is relatively inexpensive compared to beef. But the market does have record-large frozen pork stocks to work through.

90-day outlook: USDA projects pork exports will slide 6.6% for 2013 compared to year-ago, putting added pressure on the domestic market to chew through supplies. Strength in the U.S. dollar index, especially relative to the Japanese yen will be highly influential as to export demand.

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 day stronger and posted slight gains for the week, but still have a lot of work ahead in order to signal near-term lows have been posted.

5-day outlook: Cattle futures were supported by short-covering and the realization that nearby futures are trading at a sharp discount to the cash market. Key to building on today's gains next week will be how the beef market performs coming out of the Memorial Day holiday. Traders often look at post-holiday beef movement as a signal of what's to come throughout the summer grilling season.

30-day outlook: With so much focus on demand, traders are paying little attention to the tight supply situation. But indications that consumers are accepting higher beef prices should help to build a floor of support under the market. It's unusual to see futures direct the cash cattle market (usually the cash market leads direction in futures) -- especially in times of tight supplies. This strongly suggests the downside is overdone in futures.

90-day outlook: Ongoing drought conditions across the Central and Southern Plains will delay herd rebuilding in that key region. Unless pasture conditions improve in the area, the herd rebuilding stage of the 10-day cattle cycle will be delayed.

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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