Livestock Analysis (VIP) -- May 9, 2013

May 9, 2013 09:54 AM


Price action: Lean hog futures saw choppy trade throughout the day, but the market ended low-range with losses of $1.20 to 37 1/2 cents in all but the May contract, which settled low-range with a 2 1/2-cent gain.

Fundamental analysis: Marked dollar strength gave bears the advantage in the lean hog market today despite mostly favorable fundamental factors. This signals concerns about pork demand are high. Packers paid steady to higher prices for seasonally tightening market-ready hogs today, further drawing down negative profit margins. Pork cutout values rose $1.10 today and movement remained strong, but more improvement will be needed to pull cutting margins back into the black. And with Memorial Day buying winding down, the market is not convinced this is in the card for the near-term.

Technical analysis: June lean hog futures broke through near-term support at Monday's low and appear headed for a test of the April low of $88.22 1/2. A corrective bounce would have bulls targeting the May 2 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: Futures traded higher most of the day and closed moderately higher with gains of 22 1/2 to 62 1/2 cents.

Fundamental analysis: For the second consecutive day, the wholesale beef market saw a new record price this morning of $204.91 for Choice-grade, up 24 cents from Wednesday. But the new record came on limited movement of just 70 loads.

Some additional cash cattle sales took place in the Southern Plains today, logging a $126 price, down $2 from a week earlier but steady with yesterday's action. Thus the wide spread between cash and futures continues, which suggests the trade is not confident consumers will continue to pay up for beef once the Memorial Day grilling demand is past.

Technical analysis: June futures uncovered buying at the psychological support of $120.00 and bounced higher, closing above the day's open and in the upper third of the day's trading range. That $120.00 area coupled with the April low of $119.40 provide support. Resistance rests at the May high of $124.00.


Feeder cattle

Price action: After a split day, which saw the May contract weaker most of the day and deferred contracts stronger, all contracts finished higher with gains of 15 cents to $1.02 1/2.

Fundamental analysis: A second consecutive day of record wholesale beef prices supported feeder cattle prices. But firmer corn prices and "just-steady" live cattle cash trade limited buying interest from traders. The concerns traders have over summer beef demand tends to trim demand for feeder cattle, as well. The August futures contract is about $10 premium to the cash index, which also limits buying interest.

Technical analysis: The August contract found support at Wednesday's low of $145.20 and it closed at today's high. Such trading action is normally a positive, but the entire trading range today was within the lower half of Wednesday's trading range, which is a sign the market is unwilling to commit to a trend. The gap just above $146.70 left Tuesday is an upside target, but it will take a surge above the psychological target of $150.00 to hint a change in trend.

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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