Active spread trading lifts Chicago hog futures

Chicago Mercantile Exchange hogs settled moderately higher on Wednesday, supported by the market’s discount to cash and by traders who periodically bought deferred months and sold October futures.

CME spot October hogs’ discount to the most recent exchange hog index on Tuesday at 96.38 cents per pound supported that contract.

Spot October finished at 90.95 cents/lb., up 0.025 cent (all figures US$). December closed 0.275 cent higher at 86.175 cents.

Some traders at times sold spot October futures ahead of their Oct. 14 expiration, which will be based on the exchange’s lean hog index.

The CME said on Wednesday it would temporarily suspend calculation and distribution of the exchange’s lean hog and feeder cattle indexes due to a lack of relevant USDA market data during the partial U.S. government shutdown.

“The problem is we have no way of knowing what the index is. I’m sure it would be moving lower, but just how fast going into expiration remains unclear,” independent hog futures trader Dan Norcini said.

Recent market losses following last Friday’s U.S. Department of Agriculture quarterly hog report attracted bargain hunters on Wednesday.

Friday’s report showed the U.S. hog herd unexpectedly held steady during the June-through-August quarter compared with a year earlier despite the spread of the porcine epidemic diarrhea virus (PEDv), which is deadly to baby pigs.

“I find it hard to believe that as widespread as the virus was, USDA was not able to pick that up,” said R.J. O’Brien hog futures trader Tom Cawthorne.

Overall, hog futures traded positively despite steady-to-lower cash hog prices, according to terminal hog market data. Also, wholesale pork values seemed to have topped out in the near-term, based on prices from private sources.

Packers resisted raising cash hog bids, as animals quickly gain weight during cooler weather.

Two-sided live cattle market

CME live cattle settled mixed in quiet trading.

Anticipation of at least steady cash cattle prices propped up October futures. Concern about potential deliveries next week and concerns about the government shutdown kept a lid on the contract while reducing market volume.

Deliveries against October futures will not be affected by the partial U.S. government shutdown.

Bullish and bearish traders are reluctant to take large positions as the budget battle continues in Washington D.C.

“Uncertainty is never bullish for futures,” K+S Financials analyst Jack Salzsieder said.

December live cattle futures finished down slightly as worries about its premium to last week’s cash cattle prices weighed.

Cash cattle bids in Texas and Kansas were at $123 per hundredweight (cwt) with no response from sellers, feedlot sources said. Cattle last week moved at $126 in the U.S. Plains.

Some packers may need supplies for next week’s slaughter.

Other processors are expected to curtail slaughter operations to lift their fallen margins and drive up wholesale beef costs.

“With margins in the red, and beef prices not making up for the red ink, one would expect the packer to work on the other end of the trade and take a tough stand on live prices,” said Hales Trading Co. president David Hales.

Estimated margins for U.S. beef packers on Wednesday were a negative $40.90 per head, which was the same as on Tuesday and compared with a negative $3.70 a week ago, according to

October closed up 0.05 cent/lb. at 127.3 cents while December finished at 131.825 cents, down 0.075 cent.

CME feeder cattle drew support from deferred-month live cattle market gains and expectations of tighter feeder cattle supply.

October feeder cattle ended up 0.175 cent/lb. at 164.575 cents. November settled at 166.2 cents, 0.15 cent higher and off its new contract high of 166.650 cents hit in electronic trading earlier on Wednesday.

— Theopolis Waters reports on livestock futures markets for Reuters from Chicago.


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