By Benjamin Parkin

CHICAGO--Hog futures plunged 3% Friday as traders reversed an unexpected rally the previous day.

Lean hog futures declined during much of the week on a gloomy long-term outlook. That changed late in Thursday's session, when traders decided to take advantage of the considerable discount from cattle futures to put their money into hog contracts. The possibility of increased export demand for relatively cheap U.S. pork in light of a tainted-meat scandal in Brazil also helped spur buying.

But traders lost confidence in those bets at the opening bell on Friday, prompting a selloff throughout the session.

April lean hog futures fell 3% to 67.275 cents a pound at the Chicago Mercantile Exchange. June contracts were down 2.4% to 75.750 cents a pound.

Tightening pork packer margins, which fell to $19.07 a head Thursday from as much as $27.07 at the end of last week, made the meat a less attractive processing choice for packers than beef, which is yielding considerably higher margins.

Analysts have been undecided as to what this means for hog futures going into the summer. Cheap pork prices could mean more demand and with a U.S. Department of Agriculture report this week showing pork belly stocks around a quarter of year-ago levels, they say there is plenty of room for price increases this summer. But traders Friday weren't convinced.

Live cattle futures were calm by contrast, as a report released after the closing bell showed a steady supply of cattle in U.S. commercial yards.

The USDA's report was largely in line with market expectations. Total cattle and calves on feed for the slaughter market for feedlots came to 10.8 million head on March 1, a marginal increase from the previous year. U.S. feedlots brought in 1.7 million cattle in February, 1% less than a year ago, while feedlots sold 4% more cattle in February than a year ago.

Futures prices largely consolidated after some volatility this week. April live cattle futures rose 0.3% to $1.22100 a pound in Friday's session, while the cash market trade continued quiet.

Dealers said they expected the cash trade to take off after the report Friday. Cattle sales averaged at $1.33 a pound during an online auction on Wednesday, prices sufficiently high enough to scare packers off buying in the hope that they would cool later in the week.

Write to Benjamin Parkin at benjamin.parkin@wsj.com

(END) Dow Jones Newswires

March 24, 2017 16:15 ET (20:15 GMT)