KANSAS CITY (Dow Jones)--Hogs settled sharply lower as reports of declining wholesale and retailer demand for several pork cuts eroded trader confidence.
Lean-hog futures closed sharply lower Friday as ongoing concerns about slowed demand for some pork cuts and declining wholesale pork prices led to profit taking.
Most contracts hit 6 1/2-week lows, extending the steep break from last week's highs hit Wednesday. June was off 7.88% during the period.
May closed down 1.52 cents a pound, or 1.58%, at 95.27 cents. Most-active June fell 1.27 cents, or 1.33%, to 95.22 cents.
This week's sharp selloff has been driven in part by unrealized expectations for improved post-Easter demand for pork, said Mike Zuzolo, president of Global Commodity Analytics and Consulting.
Retail prices for pork now reflect more of the increases in wholesale prices that have occurred during the past year, said Bob Brown, private analyst in Edmond, Okla. Grocers were no longer able to absorb the rising costs and have been forced to pass them on to consumers, analysts said.
Yet reports filtering back through the supply chain indicate consumers are pushing back by purchasing less product.
Wholesale pork prices have fallen $3.38 a hundred pounds, or 3.6%, so far this week and are down 5% from a nearly eight-month high hit in mid-April. Since prices have declined, meat buyers are more encouraged to wait to see if prices will fall further before purchasing pork to be used for mid- to late-May promotions.
The weaker U.S. dollar is supportive for pork exports and will help mitigate the slowdown in domestic demand, however, Brown said.
Some strength was expected in pork prices during May, including loins, butts and spareribs for grilling. Traders also are looking for a turnaround in belly prices, from which bacon is made. This cut had held the largest gains from a year ago among the pork cuts through the first quarter, but belly prices have fallen nearly 9% in value during the latest two weeks.
In the cash hog markets, processor bids were reported from flat to as much as $1 a hundred pounds lower. Some plants will need to purchase additional loads for next week but are trying to do to at flat to lower prices, said livestock dealers.
The terminal markets traded 50 cents to as much as $3 lower in light volume tests with tops from $60 to $62.50 on a live basis.
Cattle futures settled near flat Friday after fading from five-day highs earlier in the session amid nagging concerns about beef demand.
Hogs settled sharply lower as reports of declining wholesale and retailer demand for several pork cuts eroded trader confidence.
The April cattle contract settled on the Chicago Mercantile Exchange at $1.1705 a pound, down 0.10 cent, or 0.09%. June was up 0.17 cent, or 0.16%, at $1.1335.
May feeder cattle were at $1.3190, up 0.52 cent, or 0.40%. August was off 0.17 cent, or 0.12%, at $1.3595.
The U.S. Department of Agriculture reported soft wholesale beef prices at midday, adding to fears that consumer resistance to higher prices was showing up at the packers. Cool, wet weather in major consuming areas has led to a late grilling season, and grilling usually leads to increased beef consumption.
Traders worried that anecdotal reports of consumer resistance to high prices might be true in light of the late grilling season. Increased costs for gasoline also were worrying cattle investors who reasoned that higher gas prices would reduce the spendable income of consumers and lead to less beef consumption or changes to other, cheaper cuts.
"Gasoline prices may very well be taking people from steak to hot dogs," said Sterling Smith, market analyst at Country Hedging.
The USDA reported at midday that its composite carcass price for choice beef was down $1.26 a hundred pounds at $182.88, a 1.6% loss for the week. For select beef, the price was off $0.69 to $177.21. The volume of sales was light, totaling 93 loads of steaks and roasts and 37 of trimmings and coarse grinds.
Retail grocers appear to have their needs ordered for early May beef features, said Troy Vetterkind, director of livestock analysis and trading for Vetterkind Cattle Brokerage. With those orders booked, they can sit back and see how the product moves while prices fade.
Cash prices next week also appear to be softer, adding to the pressure on cattle futures, Plains states brokers said. Hedged feeders are inclined to sell cattle as futures decline since they can pick up extra cash from the repurchase of their hedge positions. Packers also seem to have ample slaughter cattle supplies for next week after buying at moderate levels this week and combining these cattle with May contract cattle that will become available next week.