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U.S. hogs at one-week high despite huge slaughter

U.S. hog futures jumped to a one-week high on Friday, gaining for the week for the first time since mid-July, on ideas that the downtrend in cash prices may be about over.

The higher hog market occurred despite this week’s hog slaughter being largest in four and a half years.

Gains were most pronounced in hog contracts for delivery early in 2013, with Chicago Mercantile Exchange (CME) February hog futures rising 2.6 per cent.

Spot October hogs rose 0.475 cent, or 0.65 per cent, to 74.025 cents per pound (all figures US$). Futures climbed more than three per cent for the week in the first weekly gain in nine weeks. Futures last week hit the lowest point since December 2010.

"We’ve had seven weeks in a row of producers massively over marketing hogs and it looks like we’ll see a slight deficit showing up in the hog numbers (next year)," said Allendale Inc. chief strategist Rich Nelson.

Hog producers have been liquidating their herds in recent weeks due to record-high prices for corn and soymeal — the primary hog feeds. The supply glut was further exacerbated by a seasonal increase in hogs as animals born in the spring typically reach market weight in the fourth quarter.

The hog slaughter spiked as a result, with this week’s hog slaughter estimated at 2.428 million head, the largest for a single week since January 2008 and the third largest on record, according to U.S. Agriculture Department data.

But while consumers may see lower pork prices as early as next month (October is National Pork Month), prices at the meat counter could rise as hogs become more scarce next year.

Hog futures also were supported by a sharply lower dollar, which can may U.S. pork attractive to overseas buyers. The greenback touched the lowest level since February following the announcement on Thursday of another stimulus effort by the U.S. Federal Reserve.

"The continued weakness of the dollar caused by Fed easing is seen boosting U.S. pork export prospects," analyst Richard Brock of Milwaukee-based Brock Associates said in a note to clients.

Live cattle, feeders gain

Live cattle and feeder cattle each posted modest gains of less than one per cent for the week and were little-changed on Friday.

Higher trade in the live cattle cash markets earlier this week in the southern U.S. Plains helped bolster prices to a six-month high.

Some traders took profits to close the week by exiting long positions while talk that beef packers could reduce the cattle slaughter next week also weighed on the market. Negative beef plant operating margins have some traders expecting a slowdown in slaughter.

CME October live cattle ended 0.5 cent lower at 127.05 cents per pound while September feeders settled unchanged at 145 cents/lb.

"After a great week of cash cattle, a lot of people are discussing the idea of a short-term top. Perhaps (packers) will step back on production plans for next week," Nelson said.

— Michael Hirtzer reports on commodities for Reuters in Chicago. Additional reporting for Reuters by Karl Plume.

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