Jitters over the possible effects of international trade and the Japanese economy's growth prospects Monday sent lean-hog and live-cattle futures tumbling along with many other commodities and equities.
Lean-hog futures were particularly hard hit, with the lead April contract dropping to a two-month low amid trader caution about near-term pork demand and spillover from declines in several other commodity sectors.
April, the front-month hog contract at the Chicago Mercantile Exchange, slid 2.20 cents, or 2.5%, to close at 85.95 cents a pound. It also hit a two-month low and closed at its lowest level since Jan. 14. June, the leader among lean hogs in open interest, fell 1.95 cents, or nearly 2.0%, to close at 97.55 cents, the lowest since Jan. 25.
Japan was the largest international customer for U.S. pork in terms of sales dollars in 2010 at nearly $1.646 billion. Markets don't deal well with uncertainty, and traders were uncertain that export sales to Japan would remain strong following the earthquake and tsunami Friday.
Some investors exited their long positions when the market broke out to the downside, seeking to reduce their risk, said Jason Roose, analyst with U.S. Commodities. Traders were still concerned about possible damage to Japan's infrastructure from the earthquake and tsunami.
Demand is always the big unknown, regardless of the supply levels, Roose said, and traders would continue to watch and monitor the flow of pork to and through the distribution channels there.
Tyson Foods' spokesman Gary Mickelson said earlier in the day that the company was not aware of any disruption of its exports to Japan. But that did little to soothe the concerns of some traders or soften declines in futures prices, a broker said.
Some traders and brokers said the steep declines seen over the last two trading days in which June fell 3.90 cents, or 3.8%, took prices below major support levels at recent cycle lows and key moving averages. However, traders looked for a possible bounce in hogs if shipments to Japan continue as scheduled. They also could gain support from rising wholesale beef prices.
Cash hog prices were reported flat to $1 lower to begin the week with most of the processing plants carrying enough inventory to supply the plants through midweek or beyond. Sharply lower futures prices likely caused some plant buyers to bid more cautiously than they would have otherwise, said a livestock dealer in the western corn belt.
Some dealers and market managers predicted cash prices could stabilize soon since the weighted average quotes in the western corn belt tumbled $5.55, or 6.6%, from Wednesday through Friday and were weaker again in the early cash report Monday.