Chicago Mercantile Exchange (CME) live cattle futures contracts were lower on Wednesday on poor profit margins for packers and feeders, while hog futures also dropped on falling pork product prices, analysts and traders said.
"Technically, cattle are weak and the April contract is holding a huge premium to cash," said Jim Clarkson, analyst for A+A Trading.
Spot February, which is in delivery and thinly traded, ended weak but gained on spreads with other contracts due to strong stopping of deliveries and expectations of a steady to firm cash cattle market later this week.
"The 17 deliveries were all retenders. There were no new deliveries and there was a strong stopper again, so that’s a good indication the cash market could be up this week," said Dennis Smith, a broker for Archer Financial.
Also, there are indications boxed beef may be bottoming out "which has some in the trade scratching their head." he said.
USDA late on Tuesday reported choice wholesale beef carcasses at $184.31 per hundredweight (cwt), up $1.57, and select at $179.72, up 71 cents (all figures US$).
CME February cattle was down 0.35 cent per pound at 127.25 cents. April was down 0.85 cent/lb. at 131.45 cents.
Hedgersedge.com reported the packer margin for beef at a negative 62.10 versus a negative 69.70 on Tuesday and a negative 27.50 a week ago.
Feeder cattle futures also were lower despite a sliding corn futures market, which usually supports feeder cattle due to the implications for lower costs to feed cattle.
"Feeders are down because cattle feeders are losing a lot of money," Clarkson said.
CME March feeder cattle were down 0.975 cent/lb. at 147.55 cents; April was down 1.1 cents/lb., at 150.925 cents.
Falling pork product market hits futures
CME February hog futures were down 1.425 cents/lb. at 86.9 cents/lb. and April was down 1.45, at 86.25.
"Product is in trouble, it’s weaker, so I think everyone was just getting out of the way," a CME floor broker said.
USDA late on Tuesday reported wholesale loins unevenly steady, hams $2/cwt lower and bellies $10 lower.
Trading was moderate, with mostly light demand and moderate to heavy offerings.
"Cash hogs were OK but I think with the product being down, they’re afraid hogs on the hoof might come down too," the broker said.
Cash hogs around the U.S. Midwest traded steady to 50 cents/cwt higher on Wednesday, with the supply expected to tighten from here, dealers said.
Hedgersedge reported the packer margin for pork at a negative 13.75 versus a negative 5.50 on Tuesday and a positive 1.35 a week ago.
"All of a sudden product has a problem, so that’s taking hog (futures) down," Clarkson said.
— Sam Nelson is a Reuters correspondent covering futures markets in Chicago.