U.S. hog futures rallied more than one per cent on Monday, boosted by short-covering and sentiment the market was overdone to the downside after plummeting to a 20-month low last week, said analysts and traders.
Chicago Mercantile Exchange (CME) October hogs closed up 1.225 cent, or 1.72 per cent, to 72.575 cents. December ended 1.075 cents higher, or 1.52 per cent, at 71.575 cents (all figures US$).
"There was a fuse lit that was perfect for a short-covering rally under very oversold conditions," said senior EBOT Trading analyst John Kleist.
CME hog investors also bought nearby trading months and sold deferred contracts through spreads after corn prices fell ahead of the government’s September crop report on Wednesday.
Those who sold far hog contracts did so with the view hog farmers would liquidate fewer animals if feed costs continued to come down, later pressuring cash hog values.
Hog prices now continue to spiral downward as producers trim their herds after the worst drought in more than 50 years shot feed grain prices to all-time highs.
The U.S. Department of Agriculture on Monday estimated the average hog price in the most-watched Iowa/southern Minnesota market at $64.59 cents per hundredweight (cwt), $1.11 lower than on Friday.
The break from hot weather in July, which allow hogs to grow at a faster rate, contributed to burdensome hog numbers while increasing supplies of fresh pork.
Live cattle stumble
Live cattle futures ended mixed as the roll by funds pressured the October trading month and underpinned December, said analysts and traders.
Monday was the first of five days for the Goldman Roll in which funds that follow the Standard + Poor’s Goldman Sachs Commodity Index rolled some of their October long positions into deferred months.
October live cattle closed down 0.725 cent, or 0.57 per cent, to 125.75 cents. December ended up 0.025 cent, or 0.02 per cent, to 129.2 cents.
Also, October sellers had already priced in last week’s expected higher cash cattle prices, said traders.
Late on Friday, about 18,000 head of cash cattle in Kansas and only 2,000 head in Texas moved at $124, up $1 per cwt from the week before, according to USDA.
Last week, live-basis cattle in Nebraska sold at $124-$125, $2 to $3 higher than the previous week. And dressed cattle traded at $190 to $192, steady to up $2, said USDA.
Packers in Texas may have relied on pre-arranged contracts with sellers for supplies while others bought on the open market, a feedlot source said.
Futures traders await this week’s cash trade against the backdrop of fewer cattle available for sale, unprofitable beef packer margins and reduced retail demand for beef at current prices.
The government pegged the Monday wholesale choice beef price at $191.32 per cwt, up 59 cents against Friday, but select cuts fell $1.02, to $180.68.
HedgersEdge.com put Monday’s average beef packer margin at negative $7.65 per head, compared with positive $1 per head last Friday.
Feeder cattle futures ended higher as corn price retreated, reducing feed input costs for cattle feedlots.
September ended 0.650 cent higher, or 0.45 per cent, at 144.95 cents. October closed up 0.425 cent, or 0.29 per cent, to 146.575 cents.
— Theopolis Waters writes for Reuters from Chicago.