COMMODITIES : Drop in Supplies Forecast; Pork Futures Rally
Pork futures prices rose sharply Wednesday on a combination of technical factors and indications that a seasonal downturn in hog supplies had begun, analysts said.
On other markets, cattle futures were mostly higher; stock index futures fell sharply and precious metals futures dipped as the prime lending rate rose; soybeans posted strong gains while grains were lower, and energy futures advanced.
The rally in pork futures on the Chicago Mercantile Exchange was powered mainly by technical buying based on traders’ analyses of price charts, market analysts said.
For example, heavy buying occurred and selling interest evaporated each time the contract for June delivery of hogs moved above Tuesday’s high price of 51.97 cents a pound, said Charles Richardson, an analyst in Denver with Lind-Waldock & Co.
On the fundamental side, some traders believed that the annual drop in hog supplies had begun, said Chuck Levitt, an analyst in Chicago with Shearson Lehman Hutton Inc.
Hog Flow Drying Up
More pigs are born in the fall than at any other time of year, and most of those animals have been sold for slaughter by late spring, Levitt said.
“Since Monday the hog flow has dried up considerably, and some people feel this is the start of the seasonal move,” he said.
The drop in supplies means higher prices, but “we can also expect an increase in volatility,” Levitt said. “The size of today’s advance is already giving us a prelude to that.”
Cattle futures advanced in line with higher cash prices, but traders were cautious about establishing new positions before Monday’s monthly cattle-on-feed report from the Agriculture Department, analysts said.
Live cattle settled 0.10 cent lower to 0.62 cent higher, with the contract for delivery in June at 73.42 cents a pound; feeder cattle were 0.20 cent lower to 0.90 cent higher, with May at 80 cents a pound; hogs were 0.32 cent to 1.38 cent higher, with June at 52.77 cents a pound; frozen pork bellies were 0.35 cent to 1.75 cents higher, with May at 53.07 cents a pound.
Stock index futures plunged along with stock prices as big banks raised their prime lending rates to 9% from 8.5%. It was the first increase in the closely watched rate since the October stock market crash.
Unfavorable Reaction
Standard & Poor’s 500 stock index futures on the Chicago Mercantile Exchange registered early losses in reaction to a sharp drop in worldwide stock prices caused by interest rate fears, analysts said.
The second jolt came at midday, when U.S. banks began announcing higher prime lending rates.
“The market did not react well to the increase in interest rates,” said Robert Ray, an analyst in Chicago with Dean Witter Reynolds Inc.
The contract for June delivery of the S&P; 500 index settled 5.20 points lower at 253.40.
The precious metals markets also registered disappointment at the rise in interest rates, but they absorbed the news in a matter of hours, then began moving higher and finished nearly unchanged.
“The markets were aware that beyond the negatives of a higher prime rate is the feeling that it fuels inflation, and that’s bullish for the precious metals,” said Bette Raptopoulos, metals analyst for Prudential-Bache Securities Inc. in New York.
On New York’s Commodity Exchange, gold settled 40 cents lower across the board, with June settling at $451.20 an ounce; silver was 1.8 cents to 2 cents lower, with May at $6.552 an ounce.
Soybean futures prices soared as much as 9.50 cents a bushel on the Chicago Board of Trade in reaction to the Agriculture Department’s latest supply and demand report. Grain futures retreated slightly.
The surge in soybean prices was expected after a USDA report released Tuesday afternoon predicted that the U.S. soybean stockpile would dwindle from 275 million bushels this Aug. 31 to 145 million bushels a year later.
Wheat Lower on Forecast
The report was seen as neutral for corn futures, which finished modestly lower in Wednesday’s session.
The government predicted that this year’s winter wheat harvest would be about 4% larger than last year’s, and that prediction weighed on wheat futures Wednesday, analysts said.
Wheat settled 0.50 cent to 1.50 cents lower, with May at $3.03 a bushel; corn was 2 cents to 3 cents lower, with May at $1.97 a bushel; oats were 3.25 cents to 3.75 cents lower, with May at 1.585 a bushel; soybeans were 4 cents to 9.50 cents higher, with May at $7.12 a bushel.
Energy futures prices were mostly higher in quiet trading on the New York Mercantile Exchange. Unleaded gasoline made the greatest gains because of a report showing heavy drawdowns of supplies during the past week, analysts said.
West Texas Intermediate crude oil settled 3 cents to 18 cents higher, with June at $17.49 a barrel; heating oil was 0.28 cent lower to 0.44 cent higher, with June at 47.46 cents a gallon; unleaded gasoline was 0.20 cent to 0.63 cent higher, with June at 52.25 cents a gallon.
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