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U.S. livestock: CME hogs slide on Phase One uncertainty

Cattle lower, likely on fund-driven selling

cme february lean hogs
CME February 2020 lean hogs with Bollinger (20,2) bands. (Barchart)

Chicago | Reuters — U.S. lean hog futures on the Chicago Mercantile Exchange (CME) fell about 1.5 per cent on Thursday, joining a broad sell-off in agricultural futures that traders attributed to fund selling and uncertainty about the details of a U.S.-China trade agreement signed a day earlier.

China agreed to increase purchases of U.S. agriculture products by $32 billion over two years, the deal said, including $12.5 billion above the corresponding 2017 baseline of $24 billion in 2020 and $19.5 billion above the baseline in 2021 (all figures US$).

China needs pork imports because its domestic hog herd, the world’s largest, has been decimated by African swine fever, a deadly animal disease.

But U.S. pork still faces retaliatory tariffs in China. Also, China’s pledge in the trade agreement to buy U.S. agricultural goods based on “market conditions” added to doubts about the size and timing of any future purchases.

“We all have some exciting-looking projections, but that lack of clear by-commodity volumes in the trade deal document is a concern,” said Rich Nelson, chief strategist with Allendale Inc.

CME February lean hog futures settled down one cent at 66.875 cents/lb. The April contract ended down 1.2 cents at 73.775 cents/lb.

The U.S. Department of Agriculture on Thursday reported export sales of U.S. pork in the week ended Jan. 9 at a robust 38,700 tonnes. New sales to China totaled only 1,900 tonnes, but weekly shipments totaled 16,030 tonnes, the most in four weeks.

Still, ample supplies of U.S. pork and an aggressive hog slaughter pace continue to hang over the futures market.

“We’ve got a severe over-production, and we’ve still got a 60 per cent (Chinese) tariff on pork. We’ve got exports beginning to accelerate, but the bottom line is, per capita pork supply is unchanged,” said Dennis Smith, commodity broker for Archer Financial Services.

Live cattle futures fell Thursday on what traders said was likely fund-driven selling, although most contracts closed well above the day’s lows.

CME February live cattle settled down 0.475 cent at 126.125 cents/lb. and April cattle ended down 1.075 cents at 126.425 cents. CME March feeder cattle futures ended down 0.35 cent at 144.825 cents/lb.

Feedlot cattle traded on Thursday in Texas and Kansas at $124/cwt, steady with last week, traders said, disappointing some who expected a firmer cash trade.

Beef packer margins have risen to around $30 a head from below $10 last week, but are still down sharply from mid-November, when they topped $300 a head.

“Without a big margin to capture, you are just seeing the packers put themselves in a ‘get-by’ mode, rather than willing to be aggressive,” said Matthew Wiegand, commodity broker for FuturesOne in Lincoln, Neb.

“Plus you have the next set of storms coming across the Plains here. As long as the packers are covered nearby, they are not going to try and bid up for (cattle) they may have a hard time accessing,” Wiegand said.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago.

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