Chicago Mercantile Exchange (CME) lean hog futures rose on Wednesday on firm cash hog markets while traders digested news that a Chinese firm said it would buy U.S.-based Smithfield Foods, the world’s largest pork producer.
“Cash hogs are strong. There’s a lot of talk about the Smithfield purchase on the trading floor and a lot of differing opinions,” said Jim Clarkson, a broker for A+A Trading Inc.
CME hogs for June delivery were up 0.025 cent at 94.725 cents per pound but deferred October rose 0.6 cent, to 82.9 cents (all figures US$).
The fall delivery hog futures contracts posted the biggest gains because the potential purchase of Smithfield would likely be finalized later this year, traders said.
Tom Cawthorne, hog futures broker with Chicago-based R.J. O’Brien, said if the deal passes muster with regulatory agencies it could be the December time period when pork exports could begin to increase.
“How we eat hamburgers here, China eats pork. It would be beneficial to them and more American pork going to Asia, that’s why you have the back CME hog months up so strong,” he said
China’s Shuanghui International said it would buy Smithfield for $4.7 billion in cash to help satisfy growing demand for U.S.-made pork in its home market.
“The key issue is whether or not this acquisition is going to facilitate more pork moving from the U.S. to China. If so, that’s bullish to prices and to profits for those in the pork business in the U.S.,” said Ron Plain, livestock economist with the University of Missouri.
The deal is subject to review by the U.S. Committee on Foreign Investment, or CFIUS, a government panel that reviews transactions that would bring U.S. businesses under foreign control, Smithfield said in a statement.
“It’s theoretically easier for a Chinese company to get import permits to bring product in than it might be for a non-Chinese company to do so. It’s not always a magic bullet, as we’ve seen in the soybean business, but it doesn’t hurt,” said Jay O’Neil, senior agricultural economist at Kansas State University.
China is the world’s largest buyer of soybeans and is a key customer of the United States and South America for that business.
Live cattle and feeder cattle futures also rose, aided by oversold technical signals, firm wholesale beef markets and prospects for lower feed prices later on this year, traders said.
CME live cattle for June delivery closed up 0.625 cent/lb. at 121.375 and August delivery cattle were up 0.975 at 120.4.
“Cattle futures were oversold and they’re bottoming out. Live cattle were at a discount to cash and the cut out value (wholesale beef) is holding up well,” Clarkson said.
Choice wholesale beef carcasses were up $1.35 per hundredweight (cwt) at midday at $209.89, according to the U.S. Department of Agriculture. (USDA)
Beef packers continued to show profitable operating margins on Wednesday with Denver-based livestock marketing advisory service HedgersEdge.com LLC estimating average profits at $68.35 per head, versus $76.90 per head on Tuesday and $87 a week ago.
Feeder cattle futures ended up as well following the strong cattle market and on expectations for lower cattle feeding costs later in 2013 as more corn becomes available at cheaper prices.
“Feeder cattle also are bottoming out and they’re expecting cheaper corn down the road,” Clarkson said.
Chicago Board of Trade old-crop July corn futures are trading around $6.65 per bushel but new-crop December corn futures were at about $5.66/bu.
Corn prices are expected lower later this year because U.S. farmers are trying to plant the most corn acreage since the 1930s even though excessive rains are making plantings difficult. However, analysts said the rains will help boost production potential for any of the crop that gets planted.
As of Monday roughly 14 per cent of the intended corn acres remained to be planted.
CME feeder cattle futures for August delivery were up 0.15 cent/lb. at 145.625 cents, and September was up 0.225 at 147.775.
— Sam Nelson reports on the ag commodity markets for Reuters in Chicago. Additional reporting for Reuters by Karl Plume and Theopolis Waters in Chicago.