Lean hog futures also rose as investors appeared to cover short positions and square books from Wednesday, even as cash prices continued their fading trend.
October hog futures rose 0.17 cent, or 0.2%, to 87.22 cents a pound in trading at the Chicago Mercantile Exchange. CME December hog futures rose 1 cent, or 1.2%, to 84.45 cents a pound.
Thursday's rise in hog futures surprised some long-time traders who are confident that prices for hogs and pork will continue to fall into mid-October. They point to a steady seasonal expansion in supplies as hog producers use cooler weather to raise more hogs, since the animals struggle to gain weight in sweltering summer heat.
Even as supplies are sure to rise, some investors see reasons to buy October futures, given their enormous discount to cash prices, at about 14.5 cents. The spread is important because both prices will converge as the October contract expires about seven weeks from now.
The spread is currently extra-wide in part because pork prices are sliding from record highs in July and August, when China moved to sharply boost its pork supplies and a Midwestern heat wave made for smaller slaughter-ready hogs.
The current 14.5-cent spread is at an historic size and about 40% wider than what it was at the same time last year. Then, October 2010 futures traded at $74.82 a pound, which translated to a roughly 10-cent discount to cash prices, as measured by the CME two-day lean hog index.
According to an analysis by Dow Jones Newswires, the CME cash prices over the past five years have fallen by an average of 7.87% between August 25 and the October contract's mid-month expiration. If current cash prices followed that trend, October futures would expire at about 93.5 cents, or nearly 6 cents above current prices.
Betting on a 93-cent October expiration price nonetheless requires some confidence, since the contract has never expired above 80 cents.
Cash hog prices were reported mostly weaker, with bids from 50 cents to as much as $1.50 per hundredweight lower. The processing plants were buying mainly for next week.
Hurricane Irene isn't expected to affect hog-processing operations during the day Friday but the path of the storm is being closely monitored. If the hurricane moves closer to the Carolinas than currently forecast, there could be some disruptions in operations late Friday, analysts said.
The weekend slaughter is projected to be about 55,000 and the week's total around 2.120 million head, near unchanged from year ago.
The terminal markets traded steady to $1 lower on a live basis with top prices from $64 to $70 per hundredweight on a live basis.
The USDA's pork carcass composite value, a measure of wholesale prices, on Wednesday was down $1.53 at $104.04 a hundred pounds.