October 15, 2010

 

CME hog futures close lower than expected

 

 

CME lean hog futures closed mostly lower Wednesday (Oct 13), with the exception being the far distant October and December 2011 contracts.

 

In other markets, feeder cattle futures rebounded to end higher and live cattle were lower.

 

In hogs, premiums that had been built into February and April over most-active December invited increased selling interest, which took prices down. Some outright selling occurred while other traders were spreading, or buying one month at the same time selling another. The short, or sell, leg of the spreads was often either the February or April contract.

 

In the end, December through June took triple-digit losses as traders became increasingly concerned about the supply outlook for that period. Analysts and brokers said too much optimism had been built into the prices for those months, which led to the wide-scale selloff for most of the contracts.

 

The October and December 2011 contracts closed higher on speculation that the latest surge in corn prices may cause some producers to further trim their breeding herds.

 

October closed down 0.20 cent at 73.40 cents, and December finished down 1.07 cents at 71.70.

 

Meanwhile, live cattle and feeder cattle futures prices reversed direction Wednesday as their most recent price driver, corn, pulled back from early morning highs.

 

The pullback in corn seemed to culminate a seven-day rally. A broker said corn traders had lost confidence in the market's ability to sustain the latest prices, so short-term investors sold in an attempt to capture the latest price gains.

 

That pullback in prices implied lower costs for feeding cattle, so technically oriented selling came into the live cattle pit as investors sold to capture their own short-term profits.

 

Feeder cattle had the opposite reaction in that lower corn prices implied feedlots would be able to pay more for the young cattle they fatten so investors stepped in to rebuy previously sold positions.

 

One broker said the fear of higher corn prices over the last few days had taken live cattle prices higher than they needed to be for the corn market. In other words, cattle prices would have declined a little if corn had just flattened out.

 

Selling interest in the live cattle market was augmented by a return to short-term realities in the cash market in that packers still are dealing with losses on each animal processed, and that at last week's cash price, so are the cattle feeders.

 

October live cattle settled 0.27 cent, or 0.28%, lower at 96.35 cents a pound. December was 0.82 cent, or 0.84%, lower at 98.47 cents. October feeder cattle were 0.60 cent a pound, or 0.56%, higher at 108.07 cents, and November was up 0.87 cent, or 0.81%, at 108.12 cents.