Livestock Analysis (VIP) -- May 6, 2013

May 6, 2013 09:32 AM


Price action: Lean hog futures were choppy this morning, but softened after midday and ended 35 cents lower in the May contract and 85 cents to $1.45 lower in deferred months.

Fundamental analysis: Uncertainty about cash market prospects kept the lean hog market choppy most of the day, but dollar strength and spillover from live cattle caused profit-taking to accelerate into the close. Packers are dealing with negative cutting margins as tightening supplies have caused packers to pay up for market-ready hogs, while the pork cutout value softened last week. Today, most packers kept bids steady, but there were some bids on either side of unchanged.

The pork cutout value fell 17 cents this morning, though movement was decent at 172.5 loads. The market also reacted to U.S. Meat Export Federation analysis of USDA data released Friday that reflected a 15% decline in pork export volumes for the first quarter of 2013.

Technical analysis: June lean hog futures staged a downside breakout from their week-long consolidation range. Followthrough pressure would point to a test of the April low of $88.22 1/2. A rebound, on the other hand, would have bulls targeting last week's high of $93.10.

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 sank into the close to finish 52 1/2 cents to $1.02 1/2 lower. The low-range close gives bears the upper hand heading into tomorrow's session.

Fundamental analysis: Futures started the day firmer as traders reacted to Friday's rise to an all-time high in the boxed beef market. But Choice beef values softened $1.26 this morning on slow movement, raising concerns that high prices are curbing demand.

Traders will keep a close watch on the boxed beef market this week for cash clues, but they currently expect lower cash cattle compared with last week's $128 to $130 trade based on the slow start to the beef market. This week's showlist is down slightly from week-ago.

Technical analysis: June live cattle futures posted a downside day of trade on the daily chart. Followthrough pressure tomorrow would make bears' next target the April low of $119.40, with resistance at last week's high of $124.00.


Feeder cattle

Price action: Feeder cattle futures opened firmer but fell victim to spillover from pressure in the live cattle pit to close 35 cents to $1.45 lower.

Fundamental analysis: Early support came on help from weakness in the corn market, but feeder cattle turned lower along with live cattle this afternoon. Additional pressure came from the $3 premium May feeder futures hold to the cash index.

Technical analysis: August feeder futures settled off the daily low, but still posted a slight downside day of trade on the daily chart. Near-term boundaries are support at the April low of $144.75 and resistance at the April 25 high of $152.17 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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