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Until about a week ago, cash bids - and subsequently lean hog futures - maintained consistent upward momentum due to spirited domestic and international pork demand. Since then pork futures have retreated, in part reflecting erosion in pork cutouts and cash prices as packer and retail demand for pork and hogs subside before the holiday.

Jun lean hog futures reached a peak at $77.40 per hundredweight on May 12, compared to Monday's $75.75 settlement. And, pork cutouts peaked at $87.88 on May 17 and slid to $83.92 Monday.

What was obvious Monday was thin board volume, sluggish market activity, fewer players in the trading pit and noticeable brandishing of newspapers and crossword puzzles earlier in the session than on days during routine market lulls.

All of the aforementioned are telltale signs of a futures market in holiday relaxation mode.

Travis Benson, an analyst with Crystal River Capital, said the Memorial Day holiday is offering traders the opportunity to consider taking a longer break from trading than was the case last Christmas when the beef industry was coping with fallout from bovine spongiform encephalopathy, or mad-cow disease, issues. The situation contributed to wild swings in beef as well as pork futures that made it difficult for traders to "get away," said Benson.

A veteran trader said lean hogs will probably move "sideways" until the exchange's two-day cash index comes down to meet Jun's value. Other than anticipation of the Goldman roll, funds moving out of Jun and into Jly or Aug that is expected to intensify because of Jun's large open interest, there is very little that is different about this Memorial Day compared with previous holiday markets, he said.

"We've got to get past next week, then look forward to the Fourth of July holiday meat demand," he added.

Dan Vaught, analyst with A.G. Edwards & Sons, said the traditional type of market slowdowns that typically accompany a holiday market should be expected. However, there may be a keen interest in the level of slaughter rates and whether they will remain 4% or more above a year-ago level, which was the case last week.

Traders will also monitor loin and fresh belly prices for direction, which are quoted in the government's daily pork cutout reports, said Vaught.

"Finally, they (traders) will probably keep an eye on the lean hog index with respect to how fast it may fall after seemingly hitting a spring peak that was reported last Friday at $83.81, said Vaught. If it (index) doesn't fall sharply, Jun futures may start looking pretty under-priced."

Source: eFeedLink - 26th May 2004