CHICAGO (Dow Jones)--U.S. lean hog futures fell Wednesday on softening pork prices and a strong summer heat wave that continues to blanket much of the U.S.
Hogs futures for August fell 1.5 cents, or 1.5%, to 98.15 cents a pound in trading at the Chicago Mercantile Exchange. The CME October hogs contract fell 0.92 cents, or 1%, to 90.75 cents a pound.
Hogs futures have held up into the dog days of summer, when consumers typically buy less meat for grilling, in part because many traders expect China to eventually import more U.S. pork to stabilize food prices there.
But in the absence of clear signs that China is buying, hogs futures look over-valued, brokers said. The latest CME two-day lean hog index, calculated using USDA market data, was at 95.13 cents a pound Monday, even as futures contracts that expire in mid-August are about three cents higher. The futures contract settles against the index at expiration.
"The reality is you've got cash trading" substantially lower than futures, said Steve Wagner at brokerage Country Hedging. "That's a divergence that just isn't going to fly."
Predictions for cash hog prices Wednesday were mostly steady. So far this week, pork processors have had access to enough hogs to fill their slaughter schedules at generally flat prices.
The extreme heat and high humidity across much of the Midwest are reducing feed consumption and trimming daily weight gains. Producers may be reluctant to sell additional hogs to give them a few more days to gain weight. If fewer hogs are offered for sale, some buyers may be forced to bid higher prices, said livestock dealers and analysts.
Analysts predict Wednesday's hog slaughter to be around 410,000 head.
The U. S. Department of Agriculture's carcass composite value, a measure of wholesale prices, Tuesday fell $1.08 to $99.30 a hundred pounds
The latest Dow Jones Newswires pork packer margin index was plus $8.10 per head, compared with plus $9.44 the previous day.
The terminal markets were expected to trade mostly steady with top prices seen ranging from $63 to $66 a hundred pounds.