CHICAGO (Dow Jones)--U.S. lean hog futures rose Friday as cash prices for live animals showed signs of stabilizing for a fourth straight day.
October hog contracts rose 0.15 cent, or 0.2%, to 86.95 cents a pound in trading at the Chicago Mercantile Exchange. CME December hogs rose 0.32 cent, or 0.4%, to 83.45 cents a pound.
The complex mostly shrugged off a sell-off in stock and commodity markets as traders seized on consistent signs from cash markets that demand from meat packers is again matching supplies. Prices had spiralled downward, often at a clip of 1 cent a pound per day, as supplies rose seasonally and producers rushed to sell to get in front of falling prices.
Some traders took fresh long positions since cash prices often rise after Labor Day, as meat packers feed consumer demand for grilling.
"Seasonally, October and other contracts have some tendency to bounce a little [around] September 1 into the middle later part of September," said Bob Vande Vorde, analyst at Mast Group, an affiliate of Intl FCStone.
The sharp weeks-long drop in hog prices essentially erased a historically wide gap between cash prices and futures.
At one point, cash prices were as much as 17 cents above futures prices, presenting a dilemma for investors since cash prices and futures converge as a contract ends--for October contracts, about five weeks away.
Now, October futures trade around 87 cents a pound. The latest CME two-day lean hog index, at which futures settle, was down 1.49 cents to 87.65 cents a pound on Wednesday. Those prices are calculated using USDA market data.
Cash hog prices Friday are predicted to be mostly steady but some locations may pay higher prices to secure more supplies for next week. Prior to Wednesday's upturn, cash prices, according to the USDA's national weighted average, had fallen for six consecutive days and 12 of 15 days back to mid August.
After prices had fallen more than 23 cents a pound, or 22%, from the record high hit on Aug. 4, some producers were resisting selling, which helped fuel the rebound of the past two days.
Pork processors continue to have wide margins, which encourages them to slaughter more hogs. The latest Dow Jones Newswires pork packer margin index was plus $16.74 per head, compared with plus $18.24 the previous day. Projections for Saturday's slaughter are mostly around 295,000 head and the week's total near 1.995 million.
Livestock dealers and market managers said supplies may not be as readily available for next week as they were at the beginning of this week when all plants were closed Monday for the Labor Day holiday.
The USDA's pork carcass composite value Thursday rose three cents to $94.99 a hundred pounds.
The terminal markets are expected to trade mostly steady with tops seen from $52 to $61 a hundred pounds.