Chicago Mercantile Exchange hog futures spiked to a two-year high on Monday as rumours that China is shopping for U.S. pork ignited short-covering, traders and analysts said.
With grocers gearing up for U.S. Father’s Day cookouts, solid wholesale pork prices helped extend futures’ advances for an eighth straight day.
The U.S. Department of Agriculture’s Monday morning mandatory wholesale pork price data, or cutout, calculated on a plant-delivered basis was $96.96 per hundredweight (cwt), up 86 cents from Friday (all figures US$).
CME July hogs surged to their 3-cents daily price limit. Traders bought July and sold the spot-June contract before it expires on June 14.
July futures also benefited from fund buying and spreading out of deep-deferred contracts as corn prices slumped. Less-costly corn could cause livestock producers to feed more hogs and cattle and fatten them to heavier weights.
“It was a perfect storm if you were long the market. People who were short just wanted to get out,” a trader said.
Still, lack of confirmation that the Chinese are shopping for U.S. pork sidelined buyers.
Profit-taking and cash hog price uneasiness pulled CME hogs from morning tops. Furthermore, packers cut slaughter rates and could lower cash hog bids to realign their margins.
On Monday packers processed 391,000 hogs, 11,000 fewer than a week earlier, but 2,000 more than a year ago, according to USDA data.
Government data showed the average hog price on Monday morning in the western Midwest market was down 91 cents/cwt from Friday at $74.15.
HedgersEdge.com calculated U.S. pork packer margins on Monday at a negative $6.85 per head, compared with a negative $6.90 on Friday and negative $2.20 a week earlier.
CME June hogs closed up 1.075 cents at 99.2 cents, and July ended at 97.9 cents, or 1.7 cents higher.
Funds press live cattle
Live cattle futures settled lower on fund liquidation and bearish spreads, traders and analysts said.
Monday was also the first notice day for deliveries against the June contract, which will expire on June 28.
“Some guys may have gotten out of June to avoid deliveries. But I don’t expect that (deliveries) due to June’s discount to cash,” said R.J. O’Brien floor manager Jim Brooks.
June cattle closed at 119.2 cents, 0.925 cent/lb. lower and August ended down 0.8 cent at 118.425 cents.
Investors await this week’s cash cattle sales. Last Friday, a few cattle in the U.S. Plains fetched $122 to $123/cwt, versus $124 to $125 the previous week, feedlot sources said.
More cattle are up for sale, and last week’s beef cutout spill could weigh on cash prices.
On Monday morning, USDA data showed the wholesale price of choice beef, or cutout, rose $1.52/cwt to $203.09; select cuts gained 35 cents to $183.72.
“I’m not buying anything until I see beef prices stabilize,” a trader said. “One up day does not make a trend.”
CME feeder cattle felt pressure from the lower live cattle market.
Spot August settled down 0.2 cent/lb. to 143.425, and September was at 145.55 cents, down 0.25.
— Theopolis Waters reports for Reuters from Chicago.