Chicago Mercantile Exchange hog futures settled lower on Wednesday as funds sold their October contracts and bought deferred months as they executed a regular monthly maneuver called a "roll."
Many of these funds, which utilized Standard + Poor's Goldman Sachs Commodity Index (S+PGSCI), shifted, or rolled, their CME hog and live cattle October long positions mainly into December. Wednesday was the third of five days for the shift.
October hogs closed 0.55 cent lower at 90.3 cents per pound and December hogs finished down 0.3, at 87.25 cents.
Profit taking and the lack of clear cash hog price direction put additional pressure on the hog futures.
The U.S. Department of Agriculture on Wednesday morning reported the average hog price in the eastern Midwest up 37 cents per hundredweight (cwt) from Tuesday to $87.85. Cash prices elsewhere in the Midwest were unquoted.
Some Midwest producers avoided transporting animals in this week's heat and humidity, which supported cash prices in the affected areas.
Increased seasonal supplies and slipping packer margins weighed on cash prices in other parts of the Midwest hog production region.
A major U.S. packing plant reduced operating hours on Wednesday due to maintenance and will make up the downtime on Saturday, traders said.
Sideways live cattle trade
CME live cattle futures settled narrowly mixed after a volatile day of trading. October closed up 0.025 cent to 125.05 cents/lb., while December ended down 0.075 at 128.575 cents.
Steady, rather than lower, wholesale beef values stirred short-covering and bullish spreads, offset pressure in October from the "roll."
USDA on Wednesday morning showed the wholesale choice beef price, or cutout, at $193.88/cwt, up 15 cents from Tuesday. Select cuts were up one cent at $178.75.
CME live cattle deferred months rallied at times in anticipation of tighter supplies. But, those contracts eased amid the belief that futures were overpriced based on cash expectations for that period.
This week, investors expect cash cattle to trade steady to lower, compared with last week's trades of $123/cwt.
Isolated cash cattle bids of $121/cwt were reported in Texas and Kansas against $125 asking prices, feedlot sources said.
More cattle are available on the open market after processors tapped into contracted supplies. Some packers cut slaughter to improve margins and life wholesale beef values.
HedgersEdge.com estimated margins for U.S. beef packers on Wednesday at positive $2.35 per head, compared with a positive $6.20 on Tuesday and a positive $17 a week ago.
CME September feeder cattle closed at 156.375 cents/lb., down 0.025. Futures finished nearly in line with the exchange's feeder cattle index at 156.06 cents.
Other feeder cattle contracts climbed on fund buying and lower cash corn prices in local markets. Lower corn prices can encourage feedlot demand for young cattle.
"You've got some guys starting to realize corn is cheaper than what it had been so they're starting to buy feeders," said R.J. O'Brien floor manager Jim Books.
October feeder cattle finished at 158.225 cents, up 0.45 cent, while November settled at 158.875 cents, up 0.375 cent.
-- Theopolis Waters
reports on livestock futures for Reuters from Chicago.