The discount and a positive tilt to outside market forces has helped to support the bounce over the past week but the upside may be limited given a continued flow of negative news for the cash market. High weights, higher than expected slaughter pace, weakening pork product demand and a seasonal jump in available supply are all seen as bearish forces for the cash market.
October hogs closed 45 higher on the day and the market has not closed lower for 4 sessions in a row. The market traded lower early in the session but a lack of new selling interest near 73.50 and continued talk of the discount to the cash market sparked buying and short-covering to support moderate gains on the day into the mid-session and a move to a 6-session high. The bounce occurred in spite of weakness in pork values late Wednesday and steady to $2.00 lower cash markets.
Pork cutout values, released after the close yesterday, came in at $81.60, down 99 cents from Wednesday and down from $87.05 the previous week. This is the lowest pork value since May 30th. Packer demand is weak for live inventory due to lower slaughter pace due to next week's holiday.
Weekly weights came in at 268.6 pounds, up from 267.7 the previous week and up from 263.5 pounds last year. Higher than normal weights are a surprise for the market given $8 corn and the data suggests that there may be a few hogs backed-up in the country. If so, this could cause short-term slaughter to come in higher than expected.
Actual US pork production for the week ending August 18 came in at 437.5 million pounds, up from 410.8 the previous week and up 8.13% from a year ago. Slaughter for the same week was up 6.6% from last year but higher weights add to the production.
The CME Lean Hog Index as of August 28th came in at 83.28, down 1.52 from the previous session and down from 88.65 the week before. The estimated hog slaughter came in at 431,000 head yesterday. This brings the total for the week so far to 1.726 million head, up from 1.696 million last week at this time and up from 1.673 million a year ago.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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