October 5, 2010

 

US hog futures fall to two-month low

 

 

US hog future's benchmark contract fell to a two-month low at the Chicago Mercantile Exchange on Monday due to lower cash hog prices, traders said.

 

Cattle futures finished lower, weighed down by lower beef prices and by bearish chart signals, traders said.

 

Gains in the dollar versus the euro contributed to the selling in both markets as it could slow meat exports.

 

October hogs closed down 0.700 cent at 75.675 cents per lb and December down 0.975 cent at 71.900, the lowest level for the December contract since August 11.

 

More and heavier hogs will be coming to market and that will increase pork production and weigh on prices, traders said. The discount of futures to the cash markets reflects some of that pending price pressure.

 

Hog supplies normally increase in the fall because of production cycles, but also cooler weather and the feeding of freshly harvested corn can make the hogs heavier. Heavier hogs produce more pork.

 

Cash hogs traded lower on Monday (Oct 4), with USDA reporting the average Iowa/Minnesota price down 95 cents per cwt.

 

Also worrying hog traders has been the sharp drop in pork bellies. Pork bellies are processed into bacon, but bacon demand has slowed, sending pork belly prices sharply lower.

 

Pork belly prices peaked at a record US$160 in mid-September, but have been trending lower since then. On Friday (Oct 1), they dropped US$20 from the previous day to a low of about US$115 and some traders said prices could fall under US$100.

 

Meanwhile, cattle futures were lower, with actively traded December at a seven-week low, on lower beef prices. Beef prices were lower on Monday (Oct 4) after dropping 2.0% last week and being down 5.2% in September. However, choice beef is still up 14% from a year ago.

 

Beef prices have been pressured by slowing domestic sales, but are still well above a year ago due in part to strong exports and a drop in imports.

 

October cattle finished lower, but much of the trading in that contract involved refreshing positions to avoid taking or making delivery.

 

This involved traders either selling out of long positions or buying back short positions, only to take similar positions later in the session. The purpose is to "refresh" dates of the contract, which lessens the chance of being assigned to make or take deliveries.

 

The delivery period for October begins later on Monday, but traders do not expect many because the cash market offers a better price for cattle than the October futures.

 

October live cattle futures closed down 0.850 cent, or 0.9%, at 95.100 cents per lb and December down 1.050 cents, nearly 1.1%, at 97.300 cents.

 

Feeder cattle were lower, pulled down by higher corn futures and by lower cattle futures. However, some traders said the declines in feeders appeared excessive.

 

October feeder cattle closed down 1.300 cents, or 1.16%, at 110.500 cents per lb and November dropped 1.600 cents, or 1.4%, at 110.675.