July 30, 2009

Chicago Mercantile Exchange hogs settled down sharply Tuesday (July 29) on bearish fundamentals, fund liquidation and sell stops.

 

Pork bellies also closed below board. However, live and feeder cattle posted gains.

 

Warmed-over selling after Monday's losses seeped into Tuesday's hog open that was exacerbated by late-Monday's pork cutout lapse. Nervousness about the recent jump in hog slaughters and steady to US$2 per hundredweight lower cash hog quotes made matters worse.

 

What followed were August and October losses that pressed both contracts below Monday's s lows on their way, along with other month options, to fresh seasonal bottoms.

 

The absence of positive outside market influence and soft Chicago Board of Trade corn kept those in search of a market bottom on their heels.

 

Nevertheless, the brutal beating that futures suffered recently has speculative longs itching to take a shot at what they perceive as a market that may be nearing its lows.

 

Furthermore, August and October ventured deeper into technically oversold territory. August through December remain at bullish discounts to the exchange's hog index.

 

Cash hog bids are called steady to lower for Wednesday as packers work through ample supplies.

 

The US Department of Agriculture's Iowa/Southern Minnesota weekly average hog weight data will be released early Wednesday morning.

 

And bullish and bearish traders on Wednesday may begin squaring positions in advance of the last trading day for the month of July on Friday.

 

Pork bellies finished lower on profit taking, lean hog flack and fears that bothersome hog slaughters might drag down fresh belly prices.

 

Sell stops and August/February bear spreads contributed to declines.

 

CME's weekly belly storage report will be available on Tuesday after 5 p.m. EDT.

 

August hogs closed 232 points lower at 56.85 cents a pound and earlier sank to a 56.55-cents new contract low. October finished 205 points lower at 52.70 cents. The contract at one point dropped to a 52.20-cents fresh seasonal bottom. July pork bellies settled unchanged at 92.00 cents with no trades reported prior to its expiration Tuesday at 1 p.m. EDT. August, the new lead month, closed 85 points lower at 61.37 cents.

 

February bellies ended 70 points lower at 83.30 cents and fell to a 82.20-cents new monthly low.

 

CME live cattle settled moderately higher on fund buying, short covering and buy stops.

 

Upward futures momentum after late-Monday's rally spilled over into the start of Tuesday's session without much fundamental backing.

 

Fed cattle prices last week came in steady to US$1 per hundredweight under the previous week's sales and boxed beef prices that were up slightly late Monday have been inconsistent lately.

 

And while beef packers enjoy profitable margins, some processors may pressure cash cattle bids this week due to bigger showlists in parts of the Plains.

 

Nonetheless, August and October made headway after both contracts rolled through key technical resistance barriers which forced local traders to cover previously hold positions.

 

And, spreaders bought October and sold August and December. October and December received an added bonus from spreading into those contracts out of corresponding lean hog months.

 

Cash-basis cash bids that surfaced at US$82 per hundredweight were passed by owners who are asking US$85 to US$86. Fed cattle last week sold for mostly US$83 to US$84, compared with US$83 to mostly US$84 the week before.

 

Most floor traders on Wednesday will look forward to this week's cash cattle outcome. A few others, however, might settle their accounts prior to the end of the month on Friday.

 

Live cattle market participants will also monitor the US stock market to see if it will hold above the psychological 9,000 mark. And, a few cattle traders were surprised that lean hog's tumble didn't take beef futures down with it.

 

Typically when a significant break or rally occurs in the hog pit, cattle futures follow, a brokerage firm's livestock trader said. "It seemed to me like cattle was in its own little world today (Tuesday)."

 

Feeder cattle closed higher on live cattle's run up, short covering and buy stops. Spreaders purchased deferred contracts and sold August.

 

August live cattle closed up 22 points at 84.92 cents a pound, and October finished up 37 points at 90.57 cents.

 

August feeder cattle ended up 45 points at 102.85 cents, and September closed 62 points higher at 102.97 cents.