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Hogs extend rally

09/24/2012 @ 3:13pm

U.S. lean-hog futures continued to add to an ongoing rally on Monday, lifted by technical factors and signs of tightening supplies.

Hog futures for October closed up 0.9%, at 76.5 cents a pound at the Chicago Mercantile Exchange. December hogs, the most actively traded, finished up 0.5%, at 75.35 cents.

The front-month hog contract has now posted gains in ten out of the past 11 sessions as they reflect how the nation's beaten-down hog-farming sector has rebounded from a distressing late summer and early fall. Both October and December contracts on Monday rose through some key technical levels which in turn attracted more buying. As of early September, hog futures and cash prices alike fell more than 25% as producers rushed to thin herds in an effort to limit their exposure to record-high feed costs.

Hog futures are now up 8.6% since Sept. 7, when front-month charts hit the latest in a string of nearly two-year lows. December hogs touched a seven-week high during the session.

The number of hogs passing through slaughterhouses each week is beginning to fall back to earth after hitting some all-time highs for the month of September. The falling slaughter rates suggest producers don't have as many animals to sell, especially after many sold as many as the could in prior weeks.

Early projections for this week's slaughter are mostly down 90,000 to 100,000 head from last week's estimate of 2.406 million head. If the estimates are correct, this week's slaughter would still be around 2.6% above year-ago.

Slaughters in the latest two weeks have averaged 2.417 million, part of a six-week run in which slaughters were up over last year by an average of 5.5%.

If the bubble in slaughter-ready hog supplies already has been absorbed, weekly totals soon may drop back to around 2% up from a year ago, which would be an average in the area of 2.365 million now through mid-November.

Traders also are carefully watching wholesale pork markets to see whether processors are struggling to find buyers for all the fresh pork they have been producing.

The U.S. Department of Agriculture's pork-carcass composite value Friday rose 41 cents per hundred pounds to $77.84, still down 20.2% from a year ago.

Bids in cash-hog markets on Monday were mainly flat, with some higher quotes during the day.

The buying interest is mainly from packers needing additional loads to arrive late this week.

Supplies are considered more current, or up to date, due to the increased slaughters since early August.

The latest Dow Jones Newswires pork packer margin index was $10.42 a head, compared with $10.52 the previous day.

The terminal markets traded from $1 to as much as $3 per hundredweight higher with top prices ranging from $47 to $49.50 on a live basis.

The latest projected CME two-day lean hog index, calculated using USDA market data, for Friday was up 1.42 cents at 70.35 cents a pound.

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