Lean hog futures climbed for a second consecutive day as cash-trade prices supported the market.
The going rate for hogs on the cash market has recently trended lower as packers drop their bids, but prices are still higher than futures. That has had traders pushing futures upward to close the gap.
The Chicago Mercantile Exchange's lean hog index was at 91.13 cents a pound as of Tuesday. By comparison, CME August live cattle futures were at 82 cents a pound on Wednesday, rising 0.7% for the day, while October contracts rose 1.2% to 67.65 cents a pound.
The spread "leaves futures vulnerable to a bounce; especially if pork product markets stay strong," said the Hightower Report in a note to clients. "The discount has discouraged new selling interest."
Wholesale pork has sold above $1 a pound for over a month, led by record-high pork belly prices. A U.S. Department of Agriculture report on Monday showed a drop in frozen pork belly stocks, which were already at a record low, even while stocks of other cuts such as hams rose. Pork prices were higher at $1.0213 a pound as of midday Wednesday.
Live cattle futures also rose, reversing course after falling earlier this week. Packers bought over 700 cattle for an average of $1.1768 a pound at the online Fed Cattle Exchange auction on Wednesday morning. They followed up buying cattle for $1.17 a pound live in Kansas and $1.88 a pound dressed in Nebraska, according to the USDA.
Cash-market cattle prices were lower than last week. Traders are preparing for a large increase in slaughter-ready cattle supply later in the month to come after the USDA reported last week that cattle placed in feedlots rose 16% in June from the previous year.
Buying interest still helped futures recover on Wednesday, with CME August live cattle contracts rising 1% to $1.143 a pound.
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(END) Dow Jones Newswires
July 26, 2017 15:27 ET (19:27 GMT)