U.S. hogs: Futures lower on profit-taking after cash rally

CHICAGO (Dow Jones)--Lean-hog futures were down Monday on a lower government export forecast and as traders took profits after last week's recovery in cash prices.

October hog contracts fell 0.8 cent, or 0.7%, to 86.65 cents a pound in trading at the Chicago Mercantile Exchange. CME December hogs fell 0.47 cent, or 0.6%, to 83.10 cents a pound.

Investors squared positions after some long-awaited stability in cash prices last week supported a broad rise in futures. Until last week, cash prices had fallen sharply for weeks on a strong seasonal growth in supplies.

Now that cash prices have stabilized, investors will have reasons to be cautious before taking fresh long positions, including elevated futures prices, bigger coming supplies and a shifty outlook for exports.

Futures prices continue to point to record-high prices on a seasonal basis. The October contract remains more than six cents above its highest-ever expiration prices.

Supplies of animals, meanwhile, are expected to keep growing into November. Although bigger slaughter schedules at meat packers will soak up some of those supplies, meat packers' overall eagerness to buy them will depend on autumn meat demand in the U.S. and foreign markets.

The U.S. Department of Agriculture on Monday somewhat lowered its 2011 forecast for pork exports after second-quarter shipments were lower than expected. In 2012, the agency said, supplies will eventually tighten as higher feed costs press producers to ration feed.

Meat demand in the U.S., meanwhile, has appeared to rebound in the wake of Labor Day from a late-summer slump as cooler weather in many regions had created good grilling conditions.

The just-ended swoon in cash prices helped the pork complex essentially erase an extra-wide discount between futures and cash prices. The gap, which was once as wide as 17 cents, is now razor-thin after cash prices fell from record highs set in July and August. The historically wide spread had posed a dilemma for investors since a futures contract converges with cash prices as it nears expiration.

CASH MARKETS

Cash hog prices Monday are expected to be mostly steady on buying interest from some pork processors for midweek and later delivery. Livestock dealers and market managers also say the number of hogs offered for sale this week may not be quite as abundant as during the past two to three weeks. In addition, demand may be better since the plants will be operating a full workweek.

Profitable margins also encourage packers to maintain large slaughter schedules. The latest Dow Jones Newswires pork-packer margin index was plus $16.92 per head, compared with plus $16.74 the previous day.

The USDA's pork carcass composite value Friday fell 76 cents to $94.23 a hundred pounds.

The terminal markets are expected to trade mostly steady with tops seen from $52 to $61 a hundred pounds.

The latest CME two-day lean-hog index, calculated using USDA market data, for Thursday was down 0.57 cent to 87.08 cents a pound.