Chicago | Reuters — U.S. lean hog futures surged as much as 2.8 percent on Tuesday, in a bull-spreading rally on expectations of seasonally tighter supplies and ideas of stronger retail demand for pork, traders and analysts said.
Investors were buying the Chicago Mercantile Exchange February lean hogs contract and selling deferred contracts such as April and June hogs. The result was the largest gains in the front-month contract since Dec. 14.
“People are starting to anticipate a reduction in the number of slaughter-ready hogs coming to market,” said independent hog trader Dan Norcini.
“It was a big-time reversal in the bear spreads today,” Norcini said, adding that the February-April hog spread hit a two-week high after falling to a contract low last week. February hogs finished 1.675 cents higher at 61.1 cents/lb. (all figures US$).
Animals typically gain weight more slowly in the cold winter months, as hogs and cattle eat to maintain body temperature and do not build muscle as quickly.
Cash hog prices were nearly $1/cwt higher in the key Iowa and southern Minnesota market while wholesale pork cutout edged 16 cents higher to $69.89/cwt, led by a $2.92 spike in ham values, according to the U.S. Department of Agriculture.
“We’ve got a situation where beef has shot up so much that the pork is cheap,” Norcini said. “I think we’re expecting some business to switch to pork again.”
Live cattle, feeder cattle also up
USDA data showed choice wholesale beef prices up $4.25, to $222.31/cwt, extending the gains seen during the last two weeks to nearly $30.
Wintry storms last week in the U.S. Plains cattle country left feedlots muddy and reduced offerings of cattle to slaughterhouses, limiting supplies available to packers and retailers.
Feeder cattle futures for January delivery notched a 1-1/2-month high, settling 0.15 cent higher at 167.775 cents/lb. More-active February live cattle gained 0.35 cent to 136.775 cents/lb., holding at the highest levels in about two months.
Some investors cautioned that the higher beef prices could make the meat less competitive with cheaper pork and poultry.
“The higher the wholesale beef goes, the stronger the chokehold on demand. This is a short-term bubble in the cattle,” said Dennis Smith, a broker at Archer Financial Services.
— Michael Hirtzer reports on agriculture and ag commodity markets for Reuters from Chicago.