COMMODITIES : Prices of Meat, Livestock Futures Drop; Metals Climb
Prices of frozen pork belly futures plummeted Wednesday on the Chicago Mercantile Exchange in reaction to a report indicating that the meat industry was cramming raw, unsliced bacon into freezers at a record pace. On other markets, livestock futures also fell, precious metals and copper futures rose sharply, grains and soybeans were mixed, energy futures advanced and stock index futures retreated.
Speculators have bid prices of pork belly futures so high relative to the cash market that it has become more profitable for the meat industry to store bellies for sale in the future than to sell them fresh, analysts said.
One consequence of this situation was revealed Tuesday, when the Chicago Mercantile Exchange issued a weekly report showing that the amount of frozen pork bellies in exchange-approved warehouses outside Chicago increased last week by 8.5 million pounds.
That increase, plus a 1.3-million pound rise in Chicago warehouse stocks and a probable 1-million pound increase in warehouses that do not report to the Chicago Merc, brought the total movement into warehouses for last week to nearly 11 million pounds, estimated Charles Levitt, senior livestock analyst with Shearson Lehman Hutton Inc. in Chicago.
“The biggest increase in storage accumulation for any single month occurred in December of 1970, when we stored 34.4 million pounds nationally,” Levitt said. “We are storing at a rate that’s faster than that.”
Heavy Selloff
The report sparked a dramatic selloff in the futures market Wednesday. Frozen pork bellies futures settled 1.50 to 1.65 cents lower, with the contract for delivery in February at 44.30 cents a pound.
“The spread between the cash and futures is still about 11 cents, even with today’s futures break,” Levitt said. “All you need to cover all your costs of storing bellies from now into February, when they’re deliverable, is 8 to 10 cents. Anything on top of that is gravy for the industry.”
The vast buildup in supplies of pork bellies forced prices to eight-year lows in July, and prices of both cash and futures remain sharply below their averages of the past seven years.
But the heavy storing of bellies likely will continue until futures prices fall far enough to remove the profit incentive for stashing bellies in freezers, analysts said.
Most livestock futures retreated in sympathy with the sharp drop in pork belly futures, analysts said.
Live cattle were 0.80 cent lower to 0.05 cent higher, with December at 73.02 cents a pound; feeder cattle were 0.20 to 0.68 cent lower, with November at 81.10 cents a pound, and live hogs were 0.10 cent to 1.38 cents lower, with December at 40.62 cents a pound.
Precious metals futures surged as the dollar weakened substantially against other currencies, encouraging buying from all directions.
On New York’s Commodity Exchange, gold settled $3.40 to $4 higher, with December at $424.70 an ounce; silver was 15.5 to 16.4 cents higher, with December at $6.58 an ounce. Platinum settled $15.50 to $17.60 higher on the New York Mercantile Exchange, with January at $590.60 an ounce.
Copper posted strong gains on the Comex on news of further supply tightness caused by the 3-week-old miners strike in Peru.
Grain and soybean futures finished narrowly mixed on the Chicago Board of Trade in light, cautious trading before the Agriculture Department’s crop production report.
