August 4, 2010

 

CME hog futures mixed on profit taking; cattle weak

 

 

Profit taking and spreading produced mixed CME hogs results; while live cattle on CME's trading floor settled weak while feeder cattle ended firm.

 

Contrary to higher opening calls, lean hogs retreated after those who bet on futures' advances since last Tuesday (Aug 2) took profits. Speculative buyers were also skittish about widening the bearish price gap between spot August and CME's lean hog index.

 

Several deferred contracts that hit new seasonal highs over the past three days was reason enough for some to sell those months early Tuesday. Plus, August and October were overbought based on their 75% and 72% Relative Strength Index (RSI) readings.

 

A contract's RSI indicator of 70% and over implies that month has become overpriced and vulnerable to a downward adjustment.

 

Nonetheless, spot August at one point quietly rose to a three-month top due to spreading into that contract out of October. Spreaders also sold October and landed in December and February.

 

Bullish floor traders are banking that hot weather in the Plains continues to slow the rate of hog weight gains, which should lay a foundation beneath cash hog prices. Those in the bearish camp, however, see extreme heat as a detriment to cash because it might stymie grilling, which may reduce retail interest for fresh meat.

 

Spot August closed up 0.10 cent, or 0.1%, at 87.00 cents a pound. Most-actively traded October finished 0.67 cent lower, or 0.9%, at 78.92 cents.

 

CME pork bellies were unquoted throughout the session. However, August was bid up its 3-cents daily price limit, or 2.8%, to 109.50 cents due to its bullish price discount to Monday's US$140 per hundredweight record fresh belly quote.

 

Meanwhile, floor-traded CME live cattle ended weak on various spread strategies and buyer caution in anticipation of this week's cash cattle trade.

 

Follow through from futures' setback Monday and spreading out of spot August into back months immediately dropped the spot contract to a three-week bottom. October fell through its 10-day moving average support floor due to spreaders who sold that month and bought December.

 

Cattle traders were also rattled by the stock market that slumped briefly in response to lacklustre US home sales and factory orders reports. Livestock traders view equities as an indicator of consumer demand for high-priced items including expensive meat cuts.

 

Cash-basis bids and asking prices remain silent. Cash cattle last week sold for mostly US$93 per hundredweight, compared with mainly $95 the previous week.

 

According to Tuesday afternoon's USDA beef data, which reflects wholesale beef prices, showed choice down 8 cents per hundredweight, but select items were up 58 cents.

 

Spot August ended down 0.30 cent a pound, or 0.3%, at 91.87 cents. Most-actively traded October finished down 0.20 cent, or 0.2%, at 94.22 cents.

 

CME feeder cattle settled mostly firm on short covering and futures' bullish price discounts to CME's feeder cattle index. August not only reclaimed 40-day moving average support that it slipped beneath earlier, but later took out the 100-day moving average resistance obstacle.

 

Spot August feeders closed up 0.40 cent, or 0.4%, at 113.00 cents. Most-actively traded September finished up 0.20 cent, or 0.2%, at 112.82 cents.