U.S. hog futures rose on Wednesday to their highest level in six months, lifted by strong cash hog and wholesale pork values, analysts and traders said.
Investors covering short positions gave an added boost to Chicago Mercantile Exchange hogs. Fund buying surfaced after the February contract broke through the 10-day moving average of 86.96 cents (all figures US$).
Armed with profitable margins, packers hiked bids for cash hogs while padding inventories to accommodate the first full slaughter week after the Thanksgiving holiday.
Investors kept buying a day after higher cash hog prices and wholesale pork values suggested good demand for product, said R.J. O'Brien hog futures trader Tom Cawthorne.
In recent weeks, hog numbers also appear to have tightened, given hog weights that have declined year-over-year -- helping to lift cash prices.
The U.S. Department of Agriculture's weekly average weight data showed hogs in the Iowa/southern Minnesota market last week at 274.4 lbs., up 0.5 lb. from the week before and down 1.6 lbs. from the same period a year ago.
Still, some are nervous about December futures' premium to the exchange's lean hog index at 78.03. The contract is set to expire on Dec. 14.
December hogs settled at 83.825 cents/lb., 1.45 cents higher or 1.76 per cent and peaked near a nine-month high.
Cattle drop on cash uncertainty
Live cattle futures retreated with investors at odds about which direction cash cattle prices would take this week, analysts and traders said.
A processor who bought about 1,800 head of cattle in Texas on Monday at $128, steady with last week, has since lowered bids to $124 with sellers holding out for $130, a feedlot source said.
There were no reports of cash cattle bids or asking prices elsewhere in the U.S. Plains.
Live cattle futures buyers expect cash cattle to trade around $128/cwt, underpinned by fewer animals up for sale in parts of the Plains.
They also see improving wholesale beef demand supporting cash cattle prices as supermarkets on the U.S. East Coast stock up on meat after Hurricane Sandy.
The wholesale price for choice beef on Wednesday morning was $195.56/cwt, up 22 cents from Tuesday, and select cuts were at $176.31, $1.51 higher, according to USDA.
Others argue packers might offset cash spending by cutting slaughter rates while attempting to get a grip on their elusive margins.
"Packer margins are deep into the red... and they may press the live (cash) side as hard a possible," said Hales Cattle Trading Co. president David Hales.
From Monday to Wednesday, packers processed 365,000 head of cattle, a drop of 22,000 from a week earlier and 17,000 less than a year ago during the same period.
HedgersEdge.com put the average beef packer margin for Wednesday at negative $70.45 per head, compared with negative $64.80 on Tuesday and negative $61.80 on Nov. 21.
December live cattle closed 0.55 cent/lb. lower, or 0.43 per cent, to 127.825 cents. February ended down 0.675 cent, or 0.51 per cent, to 131.65 cents.
CME feeder cattle extended losses into a third straight day, weighed by selling in the live cattle market.
January closed 0.85 cent/lb. lower, or 0.58 per cent, at 146.075 cents. March finished down 0.6 cent, or 0.4 per cent, to 149.3 cents.
-- Theopolis Waters writes for Reuters from Chicago.