U.S. lean hog and live cattle futures closed lower Friday, pressured by overall demand uncertainty following the severe earthquake in Japan, but losses in cattle eased from their earlier lows as stock prices rallied.
Hog futures were hit the hardest by the news since Japan accounted for about $1.65 billion in pork sales in 2010, or 34% of U.S. sales dollars internationally. Pork shipments to Japan in January were up 27% from a year ago by volume and 24% in sales dollars. Beef sales to Japan in 2010 were worth nearly $640 million, according to U.S. Department of Agriculture and U.S. Meat Export Federation data.
April hog futures at the Chicago Mercantile Exchange were down 1.70 cents, or 1.9%, at 88.15 cents a pound. June, which now carries the largest open interest among the hog contracts, fell 1.95 cents, or 1.9% to close at 99.50 cents. The hefty declines wiped out gains from the past two days in April and resulted in losses for the week in both contracts.
Traders were concerned about the probability of disruptions in the flow of meat products from the U.S. to Japan and a short-term reduction in consumption there due to power outages and the damaged infrastructure. In addition, some investors exited their livestock contracts as a precautionary measure, weighing on prices from the outset.
The extent of the damage in Japan and length of time needed for recovery are uncertain. News reports indicate that over 1,000 people were killed, many others injured. Some disruption of transportation within Japan is occurring, and some shipments to Japan may be temporarily delayed, analysts said.
The train and subway system is down, and retail stores in Tokyo and to the north reportedly are running out of perishable products because distribution has slowed to a crawl, said Jim Herlihy, a spokesman for the USMEF.
The uncertainty in product flow caused pork processors to bid more cautiously for hogs as well. The plants were quoting from flat to as much as $2 per hundred pounds lower for deliveries next week as they took precautions against the possibility of demand slowing temporarily.
The terminal markets traded flat to $2 higher with tops in a range from $56 to $59 on a live-weight basis.