LIVESTOCK-Higher cash pushes hogs to two-week high

Trade the News

Friday September 10, 2010 03:52:19 AM GMT

* Higher Iowa/Minnesota cash market lifts hog futures

* Deferred hogs set contract highs

* Cash pork bellies at record $154 per cwt

* Cattle futures hit by lower beef

(Updates throughout, adds closing prices)

By Jerry Bieszk

CHICAGO, Sept 9 (Reuters) - U.S. hog futures rose to two-week highs in nearby contracts and also set contract highs in several deferred months following an unexpected jump in cash hog prices in the closely watched Iowa-Minnesota market.

Cattle futures started higher, but soon turned lower pressured by lower prices in a key beef report.

USDA early on Thursday reported hogs, on average, traded $3.80 per cwt higher in the Iowa/Minnesota cash markets.

"That is why we are up," said Dennis Smith, broker with Archer Financial Services. "I think there is good enough demand with these margins to keep hogs moving at higher prices."

The average Iowa/Minnesota carcass hog price of $84.15 per cwt on Thursday morning compares with $50.96 a year ago.

High pork prices throughout the summer, including a record high average pork price in August, have pork plants operating deep in the black and has them paying higher-than-year-ago prices for hogs.

Pork plants, on average, should earn an estimated $16.10 per head on hogs on Thursday, according to the analysis firm HedgersEdge.com

Part of the support in hogs and pork is due to record high pork belly prices. USDA on Thursday reported cash pork bellies traded at a record $154 per cwt, up from the previous record of $151 set on Wednesday.

Lower pork production this year plus a sharp decline in frozen pork belly supplies, which produce bacon, have had bacon processors paying higher prices for fresh pork bellies.

Analysts have argued for much of the summer that the higher prices would hurt retail bacon sales, but wholesale pork belly prices have kept moving higher and frozen stocks have fallen.

The weekly CME pork belly report showed 1.046 million lbs moved out of reporting warehouses leaving only 434,000 lbs of frozen bellies in approved storage as of last weekend.

"There is nothing in storage so that has increased demand for the fresh," Smith said of the pork belly market.

October hog futures closed up 1.075 cents, or 1.4 percent, at 77.375 cents per lb and December up 0.875, or about 1.2 percent, at 75.125 cents.

October and December hogs were the highest in two weeks, while February 2011 through August 2011 set contract highs.

Live cattle futures started higher but turned lower pressured by lower beef prices and by spreading. October met technical resistance at the 20-day average early.

USDA early on Thursday reported the average choice beef price dropped 61 cents from Wednesday to $160.86 per cwt, lowest since Aug. 19, and the select-grade dropped 93 cents to $154.51.

A slow down in beef sales after the U.S. Labor Day holiday likely pressured the prices, traders said.

Spreading also weighed on October cattle as wealthy investment funds sold October and bought December to move long positions to the deferred month. That spreading, referred to as the Goldman roll, should continue through early next week.

October live cattle ended down 0.350 cent at 96.900 cents per lb, while December was off 0.050 at 99.650.

Feeder cattle futures followed live cattle lower, with additional pressure from higher CBOT corn futures.

September feeder cattle closed down 0.675 cent at 111.425 cents per lb and October was down 0.675 at 111.750 cents. Both months set 2-1/2 week lows. (Additional reporting by Bob Burgdorfer; Editing by Lisa Shumaker)

(c) Copyright Thomson Reuters 2010. Click For Restrictions. http://about.reuters.com/fulllegal.asp