September 2, 2010

CME hog futures lower on thinning fundamentals

A lower open is anticipated for pit-traded CME hogs Wednesday (Sep 1) due to eroding market fundamentals.

Tuesday's US$2.03 per hundredweight wholesale pork price plunge to US$91.23 and steady-to-lower cash hog price calls for Wednesday reinforces floor trader sentiments that retailers and processors are winding down for the Labor Day holiday.

Hog futures in the October contract fell to a three-week low on Wednesday in overnight electronic trade due to a sharp drop in pork prices and to forecasts that cash hog and pork markets are headed lower. But losses were pared late on short-covering amid the sharp discount of futures to cash.

Hogs futures on Wednesday fell to their lowest level since mid-August after a closely watched cash price dropped more than US$2 per cwt late on Tuesday, at a time when pork supplies are increasing.

However, late short-covering encouraged by futures discount to cash and lighter-than-expected fund rolling caused traders to unwind short October/long December spreads.

Pork production normally increases now as more hogs are delivered to packing plants. Production then stays high through the balance of the year.

USDA late on Tuesday reported the average pork price at US$91.23, down US$2.03 from Monday. The price has come down from a record last week at US$96.74.

Meanwhile, CME live cattle contracts are seen opening mixed on spillover from futures' losses Tuesday that could encounter short covering. Some in the exchange's live cattle pit are put off by disappointing cash cattle news so far this week and weakening wholesale beef values.

Others, however, are encouraged by the stock market's run up which livestock traders associate with consumer spending for expensive household items, such as high-end beef cuts.