September 6, 2010

 

CME hog futures gain on positive cash-hog price ahead of holiday

 

 

For a second day running, CME hogs futures Friday (Sep 3) closed higher on cash-hog price optimism and the stock market's upward charge ahead of the Labor Day holiday.

 

CME hogs futures bounded right out of the gate, prodded by Thursday's (Sep 2) unexpected US$1.65 per hundredweight wholesale pork price increase, which some saw as a sign that retailers may need fresh pork for meat cases after Labor Day.

 

The spot October hogs contract picked up additional traction from ideas that a few processors may be shopping for cash hogs as they make up for Monday's holiday downtime and prep for what should be a huge post-Labor Day Saturday slaughter.

 

October hogs also benefitted from its 6.59-cents a pound bullish price discount to CME's hog index for August 31 that was quoted by the exchange at US$83.01 per hundredweight late Thursday. October's price discount was calculated using the contract's 76.42 cents Thursday settlement.

 

CME's hog index represents the true value for hogs on a lean basis as reported by the USDA and lags behind the spot month by two days.

 

Spreaders also landed in the spot October month out of December and February. Spreads consists of trading two or more months simultaneously while taking advantage of the price differences between them.

 

Meanwhile, the stock market's initial surge, fuelled by encouraging nonfarm payroll numbers, generated far-month buying in CME's hog pit. Hog and cattle traders at the CME see financial markets as a gauge for consumer demand for pricier goods, such as high-end pork and beef cuts.

 

Also, the CBOT corn's steep climb on crop forecasts inspired distant-month hog futures players. High-priced corn is bullish for cash hog and cash cattle values moving forward because it may deter producers from ramping up production.

 

Spot October hogs ended at 77.20 cents a pound, up 0.77 cent, or 1.0%. Nearby December ended 0.50 cent higher, or 0.7%, at 74.65 cents.

 

Meanwhile, live cattle contracts at the CME posted an uneven finish while feeder cattle settled lower. October through February floor-traded CME live cattle ended flat to lower on profit-taking. Remaining contracts finished firm due to CBOT corn's run up and equities' gains.

 

Live cattle futures waffled throughout most of the morning. Confidence among bullish cattle floor traders, that packers will pay more next week to rebuild on-hand inventories, ran into periodic preholiday profit-taking.

 

Cash-basis cattle last week sold for US$96-$97 per hundredweight, compared with US$99-99.50 the previous week.

 

Spot October live cattle settled unchanged at 98.45 cents. Nearby December finished down 0.67 cent, or 0.7%, at 100.65 cents. And February ended down 0.20 cent, or 0.2%, at 101.65 cents.

 

CME feeder cattle futures ended lower on profit-taking and CBOT corn's jump. Costly corn is bearish for feeder cattle futures because it could spell higher input costs for cattle feeders.

 

Spot September feeder cattle closed off 0.57 cent, or 0.5%, at 114.17 cents. Most-actively traded October finished at 115.07 cents, down 0.42 cent, or 0.4%.