The U.S. Agriculture Department on Wednesday reported end-of-July pork stocks at 546.6 million pounds, down 8 percent from June and below analysts' average forecast of 561.8 million.

Although, down from forecasts and from June, the stocks were the largest on record for July and up 20 percent from a year ago. It also was the third consecutive monthly record.

"The July outcome was low relatively speaking and compared to average forecasts, which is good news," said independent meat market analyst Bob Brown in Edmond, Oklahoma.

USDA's data showed the July inventory dropped by about 46 million from June, which is double the average June-July decline of about 23 million pounds, Brown said.

Brown attributed part of the decline to July pork production being down about 24 million lbs versus June. The rest, he said, was due to pork prices being low enough to clear meat off store shelves and draw product from freezers.

The low pork prices, which began in early spring, prompted grocers to push that meat, rather than beef, said Dan Vaught, president of Vaught Futures.

"Grocers committed to a lot of that pork during May and June and continued using it in July," said Vaught.

Analysts also cited last month's 43 percent drop in pork belly inventories from June, which was also down 5 percent from a year earlier.

Low prices this spring for pork bellies, which are processed into bacon, set the stage for strong retail promotions for the summer's bacon-lettuce-tomato sandwich season, said Vaught.

While the report's pork supplies were less-than-expected, Chicago Mercantile Exchange hog futures traded lower after the report as investors focused on a bearish increase in hogs coming to market, he said. Hog futures sank 3 percent on Wednesday.

October CME hogs closed 2.625 cents lower, or 3.46 percent at 73.175 cents per lb in pit trading, and were down 0.525 cents at 72.650 in later electronic trading. December hogs closed down 2.225 cents, or 3.05 percent, at 70.825 cents in pit trading and were down another 0.550 cent at 70.275 cent in the electronic market.

BEEF SUPPLIES DOWN

USDA showed July beef inventories at 455.7 million lbs, down 3 percent from June, and well short of the 478 million analysts had forecast. However, the 455.7 million was up 10 percent from last year.

"Beef production fell by an estimated 60 million pounds in July, drawing cold storage down," said Brown. "Even though July was up from a year ago, the market ate up everything that was produced, and then some."

Vaught said despite huge increases in wholesale beef prices this year, beef production has been unable to keep pace with overall consumer demand.

"I would not be surprised to see CME live cattle garner some measure of support from USDA's July beef stocks between now and early Thursday," he said.

Spot August CME live cattle settled up 0.275 cent, or 0.23 percent, at 119.925 cents, in Wednesday's pit trading. The more active October ended down 0.150 cent, or 0.12 percent, to 124.475 cents.

Cattle futures lower in later electronic trading due to deliveries of cattle against the August futures. That contract was down 0.125 cent at 119.800 cents in afternoon electronic trading.