July 2, 2007

 

US hog seen bearish on this week's CME futures
 

 

Market analysts foresee a bearish Chicago Mercantile Exchange (CME) lean hog reaction on this week's federal government quarterly hog report that implies increased herd expansion and additional hog supplies in the coming months.

 

The figure for all hogs and pigs as of June 1 was put at 102.0 percent compared with analysts' average forecast of 101.4 percent and a range that was from 100.5 percent to 102.5 percent.

 

USDA pegged kept for breeding at 101.0 percent compared with the average of analysts' prediction of 100.5 percent and their projected range of 100.0 percent to 100.9 percent.

 

The US Department of Agriculture put hogs kept for marketing at 102.0 percent compared with the average estimate at 101.3 percent, ranging from 100.2 percent to 102.7 percent.

 

CME hog contracts have come under pressure for nearly a month because of sluggish domestic wholesale pork demand and decrease demand for certain pork products shipped abroad.

 

Nevertheless, market analysts estimate that most lean hog contracts could drop anywhere from 30 points, for the July and August trading months, to as much as 100 points in the remaining contracts based the quarterly hog data's results.

 

Rich Nelson, analyst with Allendale Inc., anticipates a 20- to- 25-point lower lean hog market open on Monday for all 2007 trading months based on the disparity between pig crop results versus hog-weight classification figures.

 

The March/May pig crop at 102.0 percent, compared with weight breakdowns for some hog categories that were quoted between 101.0 and 101.5 percent, implies that third-quarter hog slaughters may be higher than the weight breakdowns suggest, said Nelson.

 

"I think there are a few more hogs waiting out there, and we've got maybe a little more bearish market set up for the next couple of months than most people think," said Nelson.

 

Don Roose, analyst with US Commodities, said that although industry observers and hog traders factored in the potential for a negative hog report, the data reflect increasing hog supplies and herd expansion. Roose believes October and remaining contracts could shed 50 to 100 points of their value as a result of the survey's outcome.

 

Dan Vaught, analyst with A.G. Edwards & Sons, deemed the report "not that bearish, but certainly across the board negative," judging by most of the survey's outcome that, he said, came in slightly above predictions.

 

Vaught called the heaviest-weight hog outcome at 103 percent neutral to bearish for front-month July and August hog trading months, and mid-weight figures at around 101 percent "fairly neutral" that may pose less of a threat for the August contract. However, he said, the light-weight pig figure and pig crop numbers at 102 percent "are definitely bearish" for October and December trading months.

 

Vaught sees July and August hog futures opening steady to down 25 points and October and December dropping 50 to 100 points.

 

Several floor traders said afterward that July's and August's discounts to the exchange two-day hog index might neutralize a portion of survey negativity.

 

While one hog broker offered a 20- to- 30-point lower July and August point call for Monday morning, another said he would adopt a wait-and-see approach by "stepping back on the open an allowing the market to run its course" before putting on positions.