Livestock Analysis (VIP) -- May 30, 2013

May 30, 2013 10:18 AM


Price action: Lean hog futures closed higher but near the day's lows. Futures were mostly 50 to 75 cents higher with the lead-month June contract 57 1/2 cents higher.

Fundamental analysis: Cash hog bids were steady to $1 higher as packers have gotten more aggressive about filling their Saturday slaughter schedule and building inventories for next week. Saturday slaughter estimates range from 180,000 to 190,000 head since plants were closed around Memorial Day.

The pork cutout value rose today as well and movement was strong, which is an encouraging sign for consumer demand during the summer grilling season. Market-ready hog supplies are starting to decline seasonally along with carcass weights, which is supportive to cash bids

Technical analysis: July lean hog futures probed resistance above Wednesday's highs but failed to trigger buy stops, which prompted light profit-taking. The contract closed near the lows of the day but the close is the highest since Feb. 13. Initial resistance is at today's high of $94.30 and then the Feb. 7 gap from $94.90 to $95.20.

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: Some contracts got off to a slightly firmer start, but this quickly faded and selling picked up as the day progressed. Futures ended low-range with losses $1.02 1/2 to $1.35.

Fundamental analysis: The live cattle market saw a long-overdue rebound this week, but economic data pointing to another soft spot in the U.S. economic recovery again brought demand concerns into focus. Traders are worried consumers will resist record-high Choice boxed beef prices. Such worries contrast with improvement in beef movement this week. This morning, prices for Choice and Select cuts fell slightly, but movement was solid at 101 loads.

Meanwhile, packers have raised bids to $123 on the Southern Plains, but feedlots are still passing on such prices in hopes of at least steady trade with last week's $124 in the region.

Technical analysis: June live cattle futures posted a bearish reversal today, trading up to $121.70, before reversing course and settling low-range and within 20 cents of psychological support at $120.00.


Feeder cattle

Price action: Feeder cattle futures enjoyed slight gains early today, but the market eventually reversed course to end 95 cents to $1.45 lower for the day, with nearbys leading losses.

Fundamental analysis: Feeder cattle futures faced spillover pressure from the live cattle market today, as well as profit-taking after recent gains. Pressure also stems from the nearly $12 premium the August contract holds to the cash index. This morning's Drought Monitor reminded of widespread exceptional drought in the Southern Plains, which compounds concerns about tight corn supplies.

Technical analysis: August feeder cattle futures settled low-range, which could give bears the advantage to start the next session. Contract-low support is not far away at last week's low of $142.50. On the other hand, the contract needs closes above the mid-May spike high to $147.47 1/2 and the psychological $150.00 level to signal a low is in place.

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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