U.S. hog futures fell to a 20-month low on Thursday amid increased supplies, with producers rushing animals to market as the worst drought in more than half a century drove feed costs to record highs, said analysts and traders.
The decline accelerated as funds liquidated hog futures despite a strong rally on Wall Street, which typically prompts investment funds to buy commodities.
"Seeing how bad hogs were, funds may have taken some of their money out of the market and put some of it in equities," a trader said.
Chicago Mercantile Exchange (CME) hogs took the path of least resistance after cash prices extended their losing streak to eight straight days.
October lean hogs closed 1.875 cent lower at 71.750 cents per pound, with December 0.975 cent lower at 70.9 cents. Both fell below their respective 10-day moving averages of 73.3 and 71.34 cents (all figures US$).
The U.S. Department of Agriculture estimated the average price in the most-watched Iowa/southern Minnesota market at $66.46 cents per hundredweight, $2.12 lower than on Wednesday.
Packers were deluged with supplies after moisture-starved fields shot grain prices to all-time highs. More hogs are coming to market as cooler weather quicken the pace of weight gains.
And the three-day Labour Day holiday caused hogs to back up on farms, forcing packers to make up the downtime on Saturday.
Industry sources estimated this weekend’s slaughter at about 325,000 head, which could be the largest Saturday slaughter since 340,000 head on Jan. 7.
"A lot of hogs are coming to market, increasing tonnage of pork products on the retail sector and dragged the cattle down a little too," said Vetterkind Cattle Brokerage president Troy Vetterkind.
Live cattle dip
CME live cattle ended weak in spite of positive signals from cash cattle and wholesale beef demand, traders and analysts said.
October live cattle closed down 0.275 cent to 126.05 cents. December ended down 0.05 cents to 129.2 cents.
Packers in Texas bumped cash bids to $122 per cwt, up $2 from earlier this week due to tight supplies, said feedlot sources. Bids elsewhere in the U.S. Plains stood at $120, with asking prices at about $126, they said.
Also the price for beef at wholesale rose each day this week. While some contend grocers are buying product for post-holiday features, others said packers raised wholesale prices to counter higher cattle costs.
The choice wholesale beef price Thursday morning was estimated at $192.25 per cwt, $1.11 higher than on Wednesday, according to USDA.
"Pork ads are going to displace beef ads in the next couple of weeks because there is so much pork on the market," said Vetterkind.
Feeder cattle settled lower as corn prices rallied, raising feed input costs for cattle feedlots.
September ended 0.425 cent lower at 144.625 cents. October closed down 0.875 cent to 146.25 cents.
— Theopolis Waters writes from Chicago for Reuters.