Chicago hog futures dropped more than two per cent on Wednesday for their biggest one-day loss in three months, as negative margins and tepid wholesale pork demand forced packers to cut cash hog bids, traders and analysts said.
Chicago Mercantile Exchange (CME) February hogs settled 2.15 cents per pound lower, or down 2.49 per cent, to 84.2 cents (all figures US$).
April ended at 87.325 cents, 2.625 cents lower or down 2.92 per cent, and sank to a three-month low.
The U.S. Department of Agriculture Wednesday morning reported the average hog price in the most-watched Iowa/Minnesota market down 57 cents per hundredweight (cwt) to $80.36, after falling $2.37 on Tuesday.
HedgersEdge.com put the average pork packer margin for Wednesday at a negative $2.55 per head, compared with a negative $4.65 on Tuesday and a negative $3.65 on Jan. 2.
February contract selling accelerated after it dropped below the 40- and 20-day moving averages of 86.15 and 86.04 cents, respectively.
April futures broke through the 100-day moving average support level at 89.20 cents, which triggered active fund liquidation.
"Hedge fund long positions in the hogs, and to some extent in the cattle, got routed today as price declines took out some of the critical moving averages," said independent livestock futures trader Dan Norcini.
Stronger cash hog and wholesale prices are needed to reverse the selling spree in the hog futures, he said.
Cattle fade with cash hopes
CME live cattle futures sagged amid fading price optimism for cattle left unsold in the cash market, traders and analysts said.
They said technical-related selling contributed to market losses.
Packers showed little interest in buying cattle after roughly 2,500 head sold in Texas on Tuesday at $128/cwt, steady with last week, a feedlot manager said.
Since then, cash bids surfaced in Kansas at $126 and $125 in Nebraska, said feedlot sources. Overall, asking prices for remaining cattle in the Plains stood at $130, they said.
Processors may reduce slaughter rates and raise prices for beef at wholesale to stabilize fallen margins.
USDA estimated Wednesday cattle slaughter at 123,000 head, down 4,000 from a week earlier and 3,000 less than for the same period a year ago.
HedgersEdge.com put the average beef packer margin for Wednesday at a negative $67.10 per head, compared with a negative $64.20 on Tuesday and a negative $57.30 on Jan. 2.
But, supermarkets are reluctant to spend more for fresh beef above current price levels.
The price for wholesale choice beef Wednesday morning was $193.46/cwt, down 52 cents from Tuesday; select cuts gained 30 cents to $183.61, USDA said.
Also, unusually warm weather in the Plains is causing cattle to gain weight sooner than expected, making them more accessible to processors.
CME live cattle February and April selling increased after both contracts fell through their respective 40-day moving average support levels of 131.82 and 135.67 cents.
Spot February closed one cent per pound lower, or down 0.75 per cent, to 131.55 cents. April ended down 0.9 cent, or 0.7 per cent, to 135.35 cents.
Feeder cattle futures dropped on live cattle market losses, technical selling and firmer corn prices.
Spot January ended down 1.225 cents/lb., or 0.8 per cent, to 151.5 cents. Most-actively traded March was 1.225 cents lower, or down 0.79 per cent, at 153.775 cents.
— Theopolis Waters writes for Reuters from Chicago.