U.S. hog futures posted their biggest one-day percentage gain in 2 1/2 months on Thursday, driven by strong packer demand for hogs amid tight supplies and fund buying, said analysts and traders.
Chicago Mercantile Exchange (CME) October hogs earlier in the day moved above the 200-day moving average of 81.89 cents, triggering fund buying. Funds also bought after December briefly returned above the 100-day moving average of 76.3 cents (all figures US$).
Spot October hogs closed 1.775 cents per pound higher at 81.8 cents. Most-actively traded December ended up 0.175 cent to 76.05 cents.
Futures buyers were motivated by sentiment that packers would continue to spend more for hogs as the brisk movement of animals to market slowed recently.
"Packers are competing against each other for what could be a big kill this Saturday and a lot of foreign business going on right now because of cheap U.S. pork," said R.J. O'Brien hog futures trader Tom Cawthorne.
From Monday to Thursday, the hog slaughter totaled 1.73 million head, 13,000 less than a week earlier but 23,000 more compared with a year earlier, according to U.S. Department of Agriculture data.
But, some packers may have all the hogs they need heading into the weekend based on the price at the most-watched Iowa/Minnesota market late on Thursday that dropped $1.29 per hundredweight (cwt) to $78.52 -- its first decline this week.
Live cattle fall
CME live cattle settled lower weighed by worries about possible deliveries next week that trumped higher-than-expected cash cattle prices and solid beef demand, said analysts and traders.
"You had people wanting to get out of the way in case there are deliveries on Monday after more than 300 of them showed up when the August contract expired," said Troy Vetterkind, president of Vetterkind Cattle Brokerage.
Spot October, which will expire on Oct. 31, closed down 0.75 cent to 122.325 cents/lb. Most-actively traded December settled down 0.325 cent at 125.7 cents.
Prior to Thursday, investors expected cash to trade steady-to-lower than last week as packers attempt to improve their margins by cutting slaughter rates, limiting their need for supplies.
The average beef packer margin for Thursday was a negative $28.78 per head, compared with a negative $32.75 on Wednesday and a negative $37 for Sept. 27, according to HedgersEdge.com.
From Monday to Thursday, packers processed 492,000 cattle, down 13,000 from a week earlier and 34,000 less than for the same period a year ago, said USDA.
But, word that processors in the U.S. Plains paid $124/cwt for cattle, $1-$2 higher than last week, ignited a flurry of buying that sent futures to session highs before they again landed in negative territory by day's end.
"Cash was higher, wholesale prices were up and we got good news on the export front, yet we still couldn't hold the rally," a trader said.
USDA Thursday morning estimated the wholesale price for choice beef at $191.46/cwt, 76 cents higher and select cuts rose 46 cents to $177.99.
The government reported U.S. beef exports last week at a net 15,800 tonnes, mostly for Mexico. It was up 61 percent from the previous week, up 14 percent from the prior four-week average and the most since 16,800 on Sept. 13, 2012.
Feeder cattle futures finished lower, pressured by live cattle market declines and periodic corn price spikes, raising input costs for feedlots operators.
CME October closed at 144.475 cents per lb, down 0.825 cent. November closed 0.975 cent lower to 145.825 cents.
-- Theopolis Waters writes for Reuters from Chicago.