U.S. lean-hog futures rose Tuesday as traders took positions around a wide discount to cash markets, even as prices for futures remain at historically high levels.
October hog futures rose 0.17 cent, or 0.2%, to 90.15 cents a pound in trading at the Chicago Mercantile Exchange. December hogs rose 0.3 cent, or 0.4%, to 86.1 cents a pound.
Traders are carefully eyeing the steep discount between cash prices and the October contract, currently about 17 cents, since cash prices and futures converge as a contract nears expiration. Some brokers said clients are betting that the wide discount will eventually support a rise in October prices.
Other brokers are far more wary, however. Although recent record pork prices have supported a run-up in the October contract, which expires October 14, its current price is more than 10 cents a pound above the highest price at which the contract has ever expired. This means cash values will likely fall sharply over the next eight weeks, or otherwise post historically high autumn prices.
Cash prices are "working on borrowed time as the availability of hogs expands significantly over the weeks and months ahead," said Bob Vande Vorde of Mast Group.
Hog producers typically boost production in autumn as cooler weather makes for more efficient hog-raising and consumers eat more meat. China, which has been grappling with extremely tight pork supplies, said its population of hogs grew 1% in the month of July.
Cash-hog prices are predicted to be mostly steady with some locations weaker on seasonally expanding supplies into late summer and autumn. A gradual increase in supplies is underway and will continue through late autumn or early winter.
Meanwhile, current strong export sales and improved domestic demand for some pork cuts into early autumn could help support hog and pork prices through the end of the third quarter and into October, some analysts said. What is more uncertain is how strong demand will be for November, December and into early 2012.
The U.S. Department of Agriculture's pork carcass composite value Monday day fell 40 cents to $109.45 a hundred pounds.
Analysts predict Tuesday's hog slaughter to be around 413,000 head.
The latest Dow Jones Newswires pork packer margin index was plus $5.08 per head, compared with plus $9.54 the previous day.
Terminal markets are expected to trade generally steady, with tops from $69.50 to $73 a hundred pounds.
The latest CME two-day lean-hog index, calculated using USDA market data, for Friday was down 0.43 cent to $1.0734 a pound. August lean-hog futures expired that day at $1.0745 a pound.