June 10, 2010

 

CME hog futures on solid ground amid stock market spike

 

 

The stock market's initial leap and another bout of short-covering landed most CME hog futures on solid ground Wednesday despite contrary market fundamentals.

 

Hog traders hoped that signs of a healthy economy and backtracking dollar would enhance domestic and overseas sales of US products such as pork.

 

Speculative traders were also smitten with June and July, which were undervalued based on CME's lean hog index and technically oversold according to their 23% and 21% Relative Strength Index (RSI) indicators, respectively. A month's RSI signal of 30% or below means it is underpriced and subject to an upward adjustment.

 

In addition, June and July ignited buy orders even as cash hog values faded Wednesday and wholesale pork prices Tuesday fell for a fifth consecutive day.

 

Spreading into July and October out of spot-June was common as the spot month readied to meet its June 14 expiration date. Spreads involve buying two or more contracts simultaneously while taking advantage of the price differences between them.

 

Spot-June finished down 0.17 cent a pound, or 0.2%, at 77.45 cents. Most-actively traded July closed up 0.27 cent, or 0.3%, at 78.47 cents. And August settled up 0.95 cent, or 1.2%, at 80.27 cents.

 

July pork bellies finished 1.7 cents higher, or 1.8%, at 96.5 cents on short-covering and CME's neutral-to-bullish weekly belly storage numbers Tuesday. Other belly months were unquoted.

 

Meanwhile, mounting caution about this week's potential cash cattle price outcome and spreads resulted in CME live cattle weakness by day's end Wednesday.

 

Live cattle rose at first driven by additional short-covering after front months pulled back three out of the last four trading sessions. Also, the DJIA's abrupt 1.2% upswing, which suffocated the dollar, inspired bullish cattle traders.

 

That optimism, however, was later replaced with pessimism as cash cattle buyers and sellers haggled over prices against the backdrop of deteriorating boxed beef values and fading beef packer margins.

 

Packer bids for cash-basis cattle stood at US$91-92 per hundredweight in the face of US$94-96 asking prices from feeders. Fed cattle a week ago sold for US$94-95.50.

 

The USDA's Wednesday afternoon boxed beef data, which reflects beef prices at the wholesale level, showed choice cuts once more down 98 cents a pound, and select items again tumbled US$1.48.

 

Operating margin index for beef packers for Tuesday was plus US$15.45 a head, compared with plus US$27.45 Monday, according to analysts.

 

Spreaders earlier sold August and bought December, which sank August to its lowest point in four months. Others later bailed out of October and landed in February on spreads.

 

Spot-June live cattle closed down 0.3 cent a pound, or 0.3%, at 89.65 cents. Most-actively traded August finished down 0.35 cent, or 0.4%, at 87.47 cents.

 

Feeder cattle at the CME ended moderately higher on short-covering and futures' mildly bullish price discounts to CME's feeder cattle index.

 

Spot-August closed up 0.37 cent, or 0.3%, at 109.22 cents. Nearby-September ended up 0.42 cent, or 0.4%, at 109.07 cents.