Cattle futures trading in Chicago soared to a record last month and hog trading also rose as a bull market stumble sent speculators running for the exits.

Lean hog futures trading averaged 37,204 contracts a day, up 44 percent from the previous month and up 19 percent from May 2009.

An average of 60,224 live cattle futures contracts traded a day in May, up 54 percent from April and up 67 percent from May 2009, CME Group, the Chicago-based exchange operator, said in a report today. May’s average trading topped the previous record of 50,746 contracts a day in March, a CME spokeswoman said.

Livestock futures trading surged this year as shrinking animal inventories sent cattle and hog prices rallying to multi-year highs. Hedge funds and other speculators piled into cattle and hogs amid expectations commodities in general were heading for an inflationary period as the economy recovers from recession.

“In the first half of the year, we had very poor growing conditions for cattle and the economy improved,” said Paul Nelson, a livestock analyst with EHedger, LLC in Chicago.

“So we increased our demand and reduced our production, and that created a bull market,” Nelson said. “That attracted a lot of attention from speculators,” as well as other types of traders, such as commercial hedgers.

Greek woes boost commodities appeal
Greece’s recent financial troubles also contributed to buying interest in commodities, as investors sought alternatives to stocks and bonds, Credit Suisse Group fund managers said.

With fiscal deficits and debt burdens growing sharply around the world, “it is possible that inflation may begin to rise,” Christopher Burton, co-lead portfolio manager for the Credit Suisse’s Total Commodity Return Strategy, said in a statement last month.

“Because commodities are inherently a driver of inflation, and are therefore positively correlated to unexpected changes in inflation, we've seen a growing number of investors increasing their exposure to the asset class over the past few months,” Burton said.

Cattle and hog futures tumbled sharply last month, suggesting to some analysts the bull markets are over, or have at least been put on hold.

During May, many speculators cut long positions – or bets that prices will rise – in cattle and hogs, or shifted positions out of nearby contracts such as June and into deferred months, such as August and October, analysts said.

As a result, so-called open interest in cattle and hogs fell during May. At the end of last month, there were 343,487 open contracts in live cattle futures, down 6.7 percent from a month earlier, though still up 68 percent from May 2009, according to CME data.

In lean hog futures, open positions totaled 205,868, down 10 percent from the end of April but up 40 percent from a year earlier.

One live cattle contract represents 40,000 pounds of live, slaughter-ready steers. The lean hog contract reflects 40,000 pounds of hog carcasses.

Speculators still bullish on livestock
Speculators are still largely bullish in both markets, based on Commodity Futures Trading Commission data.

Swap dealers, managed futures funds and other speculators held almost 65 percent of the long positions in live cattle futures as of May 25, according to the CFTC. In lean hog futures, speculators held more than 56 percent of long positions.

In today’s trading, June live cattle rose 1.25 cents to 92.05 cents a pound, down from a contract high of 97.2 cents reached May 2. June lean hogs fell 0.075 cent to 81.325, down from a contract high of 87.8 cents on April 22.

Cattle and hog futures are up 16 percent and 36 percent, respectively, over year-ago levels. Both markets are in a process of establishing new, longer-term trading ranges, EHedger’s Nelson said. He expects cattle futures to trade between 87 cents and 96 cents over the summer.

“We’re setting up new parameters of what the market views as cheap and what it views as expensive,” Nelson said.

In the CME’s dairy complex, Class III milk futures trading averaged 1,090 contracts a day last month, up 5.8 percent from April and up 0.7 percent from May 2009.