July 1, 2010

CME cattle and hog futures end strong second quarter

Chicago Mercantile Exchange live cattle and lean hog futures finished on a positive note Wednesday (June 30) after those who bet on recent losses in both pits pocketed profits on the last trading day of the second quarter.

Live cattle also recovered from Tuesday's (June 29) fall following Wednesday's (June 30) US$91 per hundredweight cash cattle sales that were up US$1 from Tuesday's (June 29) trade and generally steady based on last week's results.

"For more than a month we've been saying how June and August cattle were at discounts to cash, then all of a sudden June fell right in line," a brokerage firm's cattle trader said after the June contract expired at 1 p.m. EDT Wednesday (June 30).

Processors for the most part were willing to keep a floor beneath cash cattle prices in part because of profitable beef packer margins and last minute retail beef buying before the Fourth of July holiday.

The federal government's Wednesday (June 30) afternoon boxed beef data, which tracks beef prices at the wholesale level, showed choice cuts up another US$0.43 per hundredweight, while select items gained an extra US$0.32.

Operating margin index for beef packers for Tuesday (June 29) was plus US$43.00 per head, compared with plus US$41.00 Monday (June 28).

Nearby August, which assumed spot-month duties after June expired, also benefited from spreading into that month out of October. Spreaders later bought October and sold December.

Spreads involve trading two or more months at the same time while taking advantage of the price differences between them.

August and October moved higher after both months jumped over their respective technical resistance hurdles, which ignited fund buying.

Meanwhile, CBOT corn's limit surge, spurred by bullish USDA grain data, inspired distant cattle month bulls. Cattlemen will be less likely to ramp up production if feed is expensive, which could underpin cash cattle prices.

Spot June live cattle settled up 0.57 cent a pound, or 0.6%, at 91.25 cents. Most actively traded August finished 1.27 cents higher, or 1.4%, at 90.02 cents. October closed at 91.25 cents, up 0.90 cent or 1.0%.

Floor-traded CME feeder cattle finished mostly firm on buying across the aisle in the live cattle pit and short-covering as the end of the quarter wound down.

Spot August and nearby-September closed up 0.17 cent, or 0.2%, at 113.05 cents and 113.27 cents, respectively.

Besides short-covering following two days of declines, CME hogs snapped back on fund buying after August and October cracked their respective technical resistance barriers.

Speculative buyers also targeted spot-July and nearby-August bullish price discounts to CME's lean hog index. August led the front-month charge supported by those who bought it and sold July and October on spreads.

Nonetheless, forward contracts slipped from morning tops amid flimsy current market fundamentals and post-holiday cash hog price uncertainty. Cash hogs Wednesday (June 30) were quoted mostly lower on the heels of Tuesday's (June 29) three-day wholesale pork price slide.

An admitted market bear anticipates added cash hog price pressure at least into the middle of next week. He said packing plants that are scheduled to be closed Friday (July 2) and Monday (July 3) for the upcoming holiday could ultimately "bunch up" supplies.

However, those with bullish market leanings believe packers will be able to absorb any potential hog backlog by increasing daily kills and slaughtering aggressively next Saturday.

Meanwhile, speculative buyers were lured into deep deferred hog contracts by high-priced CBOT corn that might make producers think twice about expanding herds which may provide cash hog price support.

Spot July finished up 0.47 cent a pound, or 0.6%, at 79.22 cents. Most actively traded August closed 0.70 cent higher, or 0.9%, at 81.65 cents.

CME pork bellies ended 1.70 cents lower, or 1.7%, 99.50 cents on chart-related selling. Other belly months were unquoted.