Fund buying extends U.S. hog futures advances

Chicago Mercantile Exchange hog futures rose for a sixth straight session on Friday, led by fund buying that prompted short-covering, traders and analysts said.

October futures’ discount to CME’s hog index, which was at 91.45 cents, encouraged buying and bullish spreads.

CME hogs closed up 3.6 per cent for the week.

October ended 1.5 cents higher at 90.9 cents per pound and hit a new contract high of 91.025 cents. December ended up 1.075 cents, to 87 cents (all figures US$).

The possibility that spread of the porcine epidemic diarrhea virus (PEDv), which is fatal to baby pigs, will reduce hog supplies later this year generated October and December futures buying.

“A lot of baby pigs that have died from that (PEDv) would have gone to slaughter in the fourth quarter, which is helping boost fourth-quarter futures,” University of Missouri livestock economist Ron Plain said.

Others contend that the virus’s impact will be minimal and may have been factored into the market already.

Futures climbed despite packers lowering cash hog bids as wholesale pork demand wanes.

Processors may trim production next week to preserve operating margins. The move could offset a brief reduction in hog supplies after a recent bout of hot weather slowed animal weight gains.

The U.S. Department of Agriculture on Friday morning reported the average hog price in the most watched Iowa/Minnesota market at $68.33 per hundredweight (cwt), $1.34 lower than on Thursday.

Friday morning’s U.S. government data showed the wholesale pork price, or cutout, at $94.94/cwt, down 56 cents from Thursday.

The cutout was largely weighed down by the $5.06 price drop for loins, which are cut into pork chops and which are popular at backyard barbecues.

Wholesale pork and beef prices tend to lag after the Labour Day holiday, the unofficial end of the U.S. summer grilling season.

Funds that trade CME hogs and live cattle periodically sold October futures and bought deferred months. They moved October long positions mainly into December prior to similar moves next week by followers of the Goldman Sachs Commodity Index (S+PGSCI).

That shifting will be for five days beginning Sept. 9.

Mixed, choppy live cattle trade

CME live cattle settled mixed after a volatile session.

For the week, CME live cattle gained 2.4 per cent.

October closed up 0.45 cent/lb. at 125.675 cents, while December ended down 0.1 cent at 129.025 cents.

Sentiment that cash cattle prices have forged a near-term bottom stirred CME live cattle October buyers, traders said.

Cash cattle traded lightly in Texas and Kansas at $123/cwt, steady with last week, feedlot sources said. Initial live-basis cattle sales in Nebraska were at $122, down $2 from a week ago, they said.

Packers held cash prices steady despite ample supplies of contracted cattle and waning wholesale beef demand.

USDA on Friday morning showed the wholesale choice beef price at $195.23/cwt, down 63 cents from Thursday. Select cuts dropped 73 cents to $181.18.

The belief that futures are over-valued based on cash cattle price expectations weighed on deferred live cattle months.

“Everyone is optimistic about the cash, but the board (futures) is carrying that premium,” CattleHedging.com analyst Elaine Johnson said.

CME feeder cattle fell on fund selling and firm corn prices that may curb feedlot demand for young cattle.

Feeder cattle futures ended down marginally for the week, snapping a seven-week win streak.

September closed at 156.375 cents, down 0.375 cent, while October ended 0.875 cent lower at 157.925 cents.

— Theopolis Waters reports for Reuters from Chicago.

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