Livestock Analysis (VIP) -- May 28, 2013

May 28, 2013 09:20 AM


Price action: Lean hog futures closed narrowly mixed with the July and August contracts slightly firmer and the other months ending mildly weaker.

Fundamental analysis: Lean hog futures were initially supported by followthrough buying after a high-range close last week and a stronger-than-expected consumer confidence reading that surged to a five-year high in May. But that initial wave of buying interest was eventually replaced with some profit-taking given the surge in the feed markets today.

Cash hog bids were steady at most Midwest locations to start the week. While most plants need hogs for late-week kills, they are willing to test the waters with steady cash bids early this week. Most plants are planning a bigger Saturday kill to make up for down time Monday.

Technical analysis: July lean hog futures poked above last week's high to extend the price recovery from the March low. But the contract is struggling to pull away from the 38% retracement of the price drop from the contract high to the March low. The next level of solid resistance is around $94.57 -- a 50% retracement of that move.

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 favored a firmer tone throughout the day and closed 17 1/2 cents to 97 1/2 cents higher.

Fundamental analysis: Despite less-than-favorable weather to kick off the summer grilling season this Memorial Day weekend, the boxed beef market saw a solid start to the week. Choice values rose 17 cents this morning with 120 loads changing hands. Traders will be keeping a close eye on the beef market this week, especially with this week's cattle showlist higher than last week. To encourage packers to raise bids, beef prices must continue to strengthen.

Live cattle were also supported by spillover from the Dow Jones Industrial Average, as it is viewed as a barometer for the economy and meat demand.

Technical analysis: August live cattle gapped slightly higher on the open, filled the gap and closed near opening levels. Today's high of $120.20 is initial resistance, with support at last week's contract low of $117.90. The contract needs closes above the May high of $124.10 to signal a low has been posted.


Feeder cattle

Price action: Feeder cattle futures extended gains into the close to end 35 to 92 1/2 cents higher.

Fundamental analysis: Despite strength in the corn market, feeder cattle futures firmed into the close in reaction to tight calf supplies and slight strength in live cattle futures. Building on today's gains could be difficult, however, as August futures are trading in around a $12 premium to the cash index, which stands at $132.10.

Technical analysis: August feeder cattle futures posted an upside day of trade on the daily chart and need closes above last week's high of $146.70 to reverse the trend of lower highs. But the contract needs to return above the late April high of $152.17 1/2 to confirm a low has been posted.

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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