A surge in rib prices and higher trade for cash bellies were the primary reasons for the continued strong gains in pork cut-out overnight. While the data is supportive and higher pork values should support higher packer margins, traders are hesitant that ribs and bellies will continue to rally much over the near-term. Unless there is a jump in exports, ribs and bellies are products which normally rally in the summer and see slower demand into the winter.

Pork cutout values, released after the close yesterday, came in at $86.65, up 96 cents from Tuesday and up from $83.11 the previous week. This is the highest values since August 23rd. December hogs closed sharply higher on the session yesterday and traded up to the highest level since August 1st.

The market is finding support from continued strength in the cash market and from the surge in pork cut-out values. Peoria cash hogs jumped $2.00 yesterday but cash was mostly steady/firm. The jump in product prices will help support improving packer margins and strong demand for a large Saturday kill.

Traders see Saturday slaughter near 225,000 head from 194,000 head this past week. The discount of December to the cash market has added to the speculative buying and short-covering support. The 2-day lean index jumped to 81.05 which left December hogs at a 295 point discount to the cash. The index is up from 76.80 the week before.

Slaughter came in slightly below expectations at 434,000 head. This brings the total for the week so far to 1.303 million head, up from 1.299 million last week at this time and up from 1.279 million a year ago. As reported yesterday morning, weekly average weights for Iowa-Southern Minnesota as of October 6th came in at 271.3 pounds, up from 269.2 the previous week and down from 272.7 pounds last year. While many traders see weights as low, the 5-year average weight for this time of the year is 268.5 pounds.

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