Chicago | Reuters — Most Chicago Mercantile Exchange hog futures gained on Tuesday, driven by short-covering in response to higher prices for slaughter-ready or cash hogs, traders said.
Aside from the CME May hog contract, which will expire on Wednesday, remaining months gained as packers spent more for supplies to accommodate the rest of this week’s production.
Tuesday afternoon’s hog price in the Iowa/Minnesota market rose $1.76 per hundredweight (cwt) from Monday to $110.12, the U.S. Department of Agriculture said (all figures US$).
May hogs closed down 1.025 cents per pound at 112.4.
June ended 0.6 cent higher at 119.6, and July up 0.250cent to 125.4.
Expectations of fewer hogs this summer, as the porcine epidemic diarrhea virus (PEDv) sweeps through farms, helped support back-month hogs.
Despite the day’s $2.20/cwt wholesale pork price setback, speculators bought futures in anticipation of improved meat demand due to U.S. Memorial Day grilling advertisements.
On Wednesday, CME hogs could fluctuate as investors weigh futures’ premiums to the exchange’s index against Tuesday’s spike in cash hog returns.
Back-month speculative traders have to rationalize whether those premiums are justified, especially if packers continue to allow heavy hogs and trim kills to counter potential PEDv-related production losses, said Linn Group analyst John Ginzel.
Roll by funds drops live cattle
CME live cattle settled lower as funds rolled some of their June positions into months further out, traders said.
Funds trading in CME’s hogs and live cattle markets shifted June long positions further back in a procedure known as the “roll” by followers of the Standard + Poor’s Goldman Sachs Commodity Index (S+P GSCI).
Tuesday was the last official day for the current index roll process.
Anticipation of steady to lower prices for market-ready or cash cattle this week, based on a seasonal bump in supplies and fading packer margins, deterred futures buyers.
Last week, cattle in Texas and Kansas moved at $146/cwt, and up to $150 in Nebraska.
Beef packer margins for Tuesday were at a negative $40.85 per head, compared with a negative $33.85 on Monday and a positive $10.70 a week ago, as calculated by HedgersEdge.com.
Investors await an upward trend in wholesale beef prices to determine whether the cutout has bottomed out in the near term.
The Tuesday afternoon wholesale choice beef price jumped $2.79/cwt from Monday to $226.61. Select cuts climbed $2.89 to $215.53, based on USDA.
CME feeder cattle May futures tracked the exchange’s feeder cattle index at 184.06 cents.
Profit-taking and the weak live cattle market pressured the August feeder cattle contract.
May closed up 0.125 cent/lb. at 184.725 cents, and August down 0.2 cent at 191.675 cents.
— Theopolis Waters reports on livestock futures markets for Reuters from Chicago.