Livestock Analysis (VIP) -- May 29, 2013

May 29, 2013 09:59 AM


Price action: Lean hog futures enjoyed strong gains for most of the session, but the market softened late to end at or near-session lows with gains of 2 1/2 to 82 1/2 cents in all but the July contract, which ended 35 cents lower and posted a bearish reversal.

Fundamental analysis: Several lean hog futures contracts gapped higher on the open thanks to news a Chinese company will buy Smithfield Foods (see "Evening Report" for more). Traders view this as expanding export opportunities for U.S. pork producers. But the early gains eventually gave way to profit-taking as nearby contracts are at a slight premium to the cash index.

Packers are preparing for a large kill this weekend. While some packers have recently seen profit margins dip into the red, tightening supplies have kept cash hog bids mostly steady. Also, pork movement surged this morning on a firmer pork cutout value, which bodes well for summer grilling prospects.

Technical analysis: July lean hogs posted a bearish reversal today, but the trend of higher lows remains intact. The contract respected near-term psychological support around $93.00 today. A move through that level could signal the contract is headed for a test of the May low at $89.80. Today's high of $94.10 is initial resistance.

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 traded higher all day and closed moderately to $1.00 higher, which was near the day's highs.

Fundamental analysis: Choice boxed beef moved higher today after weakening Tuesday and movement improved to suggest demand is holding up better than expected. Traders have worried record high beef prices would meet consumer resistance following the Memorial Day holiday. Traders will continue to watch for any downturn in demand from the retail side and in live prices as showlists are higher this week. The weaker dollar and lower grain futures offered support today as well.

Technical analysis: Futures probed higher and held gains throughout the day closing near the day's high. June posted its highest closing price since May 3 and appear headed for a test of psychological resistance at $121.50. The winter downtrend line offers resistance above $122.00. It takes a close above the May high of $124.0 to confirm a low. Support rests at last week's contract low at $118.80.


Feeder cattle

Price action: Feeder cattle futures traded higher but finished only slightly higher closing near the day's lows with gains of 10 to 22 1/2 cents.

Fundamental analysis: As corn futures strengthened, buying in the feeder cattle pit lightened, but futures still found some spillover from live cattle futures. August feeder futures continues to carry a high premium versus the cash index, which also limited buying today.

Technical analysis: August futures gapped slightly higher at the open, traded higher and then slumped, filling the gap left on the open. Despite the weak close, futures did post slight gains. But the initial thrust higher encountered resistance before testing last week's high at $146.70. It takes a close above the late April high of $154.40 to confirm a 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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