September 14, 2010

 

CME hog futures seen weak on dull fundamentals

 

 

Lacklustre fundamentals are expected to weigh on most pit-traded CME hogs contracts Monday (Sep 13).

 

Fundamentally, wholesale pork prices Friday (Sep 10) slipped 40 cents per hundredweight to US$89.85 as retailers reduced their buying after last week's US Labour Day holiday. Packers are expected to begin the week with generally steady to weak bids for cash hogs after stockpiling supplies that were bought late last week.

 

The price discount between spot October hogs and CME's hog index has narrowed enough to make it less attractive to prospective bullish hog futures traders.

 

The October contract Friday closed at 77.25-cents a pound, or 4.61 cents below CME's hog index at US$81.86 per hundredweight for September 8.

 

CME's hog index represents actual hog prices on a lean basis as reported by the USDA and lags behind the spot hog month by two days.

 

A spot-October discount of 6-cents and above gives some CME hog floor traders a reason to buy the contract. They, however, regard anything below 5 cents as a sell signal.

 

The fourth of five days for the current Goldman roll session is on tap for Monday and consist of funds relocating some of their spot-October hog long positions into December.

 

Potential spot-October hog declines could cause the contract to test 76.26-cents 40-day and 75.99-cents 10-day moving average levels of technical support. The contract's 75.95-cents 20-day and 75.65-cents 100-day moving averages are additional support areas.

 

December's 73.88-cents 40-day, 73.79-cents 10-day and 73.73-cents 20-day moving averages serve as levels of support.

 

Meanwhile, a mixed open is expected for CME live cattle futures as traders test early-week market direction while looking forward to this week's cash cattle price negotiations.

 

Packers last week bought cash-basis cattle for US$96-98 per hundredweight, compared with mainly US$97 the previous week. Retailers have become astute shoppers, knowing that the seasonal break in temperatures cause cattle to gain weight faster, which increases beef supplies, a CME cattle trader said.

 

The margin received by those who slaughter cattle and process them into beef was plus US$17.15 per head for Friday's operations, compared with plus US$28.20 Thursday, according to reports.

 

Spot October's 97.33-cents 20-day moving stands in the way of that month's forward progress. December's 99.35-cents 20-day moving average is a support floor. The contract's 100.20-cents 10-day moving average is a resistance threshold.

 

A flat to firm start is anticipated for floor-traded CME feeder cattle that are bullishly underpriced compared with CME's feeder castle index.

 

The exchange quoted its feeder cattle index for the seven days ended September 9 at US$113.71 per hundredweight. CME's feeder cattle index is an average of feeder cattle prices from several areas that are compiled over a seven-day period.