Livestock Analysis (VIP) -- May 2, 2013

May 2, 2013 09:48 AM


Price action: Lean hog futures finished mixed to post anywhere from a high- to a low-range close. Hogs closed 40 cents higher to 35 cents lower.

Fundamental analysis: Front-month May futures were supported by ongoing strength in the cash market, although the contract holds a lofty premium to the cash index. Snow across the upper Corn Belt slowed transportation today and provided an extra lift for the cash market. While packers have seen profit margins slip into the red this week, tighter market-ready supplies has kept cash bids pointed higher.

Pork cutout values were down sharply this morning, but movement was strong. If pork prices continue to soften, it would suggest retailers have near-term features secured.

Technical analysis: June lean hog futures briefly traded above resistance to post a weekly high before setting back slightly. The contract must fill the mid-February gap at $94.05 to signal bulls have clearly regained momentum. Doing so would make their next target the late January high of $98.80. Psychological support is at $90.00.

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 gapped higher on the open and settled with gains of 47 1/2 cents to $1.17 1/2. This was only good for a mid-to low-range close, however.

Fundamental analysis: Live cattle futures received a boost from the ongoing surge in boxed beef prices. Price gains this morning brought Choice cuts within 88 cents of the all-time high of $201.18, which was hit in October of 2013. But slower movement at higher prices raises questions about such prices being sustainable in light of a weak economy.

Cash cattle trade got started yesterday at mostly $128 to $129 on the Southern Plains and some additional light sales took place at this level today. These prices are mostly steady with last week. Cash trade is also picking up in northern locations today at steady to higher prices of $130 to $131, including record highs in Nebraska. The winter storm in the upper Midwest has tightened near-term supplies.

Technical analysis: June live cattle gapped higher on the open and posted an upside day of trade, opening upside potential to the April 1 high of $124.50. Former resistance at Monday's high of $123.25 is near-term support.


Feeder cattle

Price action: Feeder cattle futures rallied today and ultimately settled with gains of 50 cents to $1.10 for the day.

Fundamental analysis: Spillover from live cattle amid signs of beef demand strength encouraged short-covering in feeder cattle futures today. This strength was especially impressive considering gains in the corn market and a sharply higher U.S. dollar index due to macro-economic headwinds today.

Technical analysis: May feeder cattle futures settled back above psychological resistance at $140.00 today, turning that level into near-term support. Resistance stands at the April high of $142.25, followed by the top of the April 10 downside gap at $144.32 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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