June 9, 2010

 

CME hog futures continues to decline

 

 

Ongoing negative market fundamentals are seen leaning on most CME hogs at the start Tuesday (June 8).

 

Monday's wholesale pork price was down US$0.58 per hundredweight - its fourth decline in a row. Steady-to-lower cash hog price calls for Tuesday suggests packers have near-term supplies well in hand.

 

However, June and July are emitting 24% and 19% Relative Strength Index technical signals that may attract speculative bullish traders. A month's RSI of 30% or less suggests it is oversold and subject to an upward adjustment.

 

And those who banked on market losses over the past four sessions might attempt to take profits which should minimise potential futures losses.

 

Broader markets will again be on the minds of hog traders because of the economy's close ties to consumer spending for household products including expensive cuts of pork.

 

Spot-June hogs will likely move within a narrow trading space ahead of spot-month expiration on June 14.

 

A mixed CME pork belly open is anticipated featuring follow-through from recent market pullbacks versus potential short-covering.

 

Traders will also adjust positions ahead of CME'S weekly belly storage report at 5p.m. EDT Tuesday.

 

A firm CME live cattle start is expected due to potential short-covering and futures' persistent price discounts to last week's cash cattle sales.

 

Processors last week paid mostly US$94 to US$95.50 per hundredweight for cash-basis cattle, compared with mainly US$93 to US$94 a week earlier.

 

Nonetheless, slipping beef packer margins and fading boxed beef values jeopardise this week's cash cattle price outcome.

 

The USDA's Monday evening boxed beef data, which reflects beef prices at the wholesale level, showed choice cuts down another US$0.64 cents a pound, and select items fell again by US$0.82.

 

Operating margin index for beef packers for Monday was plus US$27.45 per head, compared with plus US$33.70 Friday, according to reports.

 

Those on the cattle side of the aisle will closely monitor movement on the financial front, which is an indicator of whether grocery shoppers will have the monetary wherewithal to buy high-end beef cuts.

 

A flat to firm pit-traded CME feeder cattle open is expected given possible short-covering. Furthermore, contracts are undervalued based on the exchange's feeder cattle index that picked up ground during the last four sessions.