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The market seems a bit vulnerable to a corrective break over the near-term "if" pork values begin to show some weakness. However, pork values have been strong and pushed to the highest level since August 21st. The foundation of the rally is partially on short-covering given the sharp drop in open interest on the rally. A seasonal increase in supply ahead may be a factor to help turn product prices lower soon.
December hogs closed moderately higher on the session yesterday and up for the 4th day in a row. The market saw choppy and two-sided trade early but a positive tilt to commodity markets and a jump in cattle helped support a move higher. The rally pushed December futures to the highest level since July 31st. The discount of futures to the cash market helped to limit the selling pressures early.
The CME Lean Hog Index as of October 15th came in at 83.21, up 23 cents from the previous session and up from 81.05 the week before. This leaves December hogs at a discount of 395 points to the cash market, which has helped to provide some support.
Slaughter came in higher than expected at 434,000 head, which is seen as a slightly positive development. This brings the total for the week so far to 1.300 million head, up from 1.298 million last week at this time and up from 1.282 million a year ago. Pork cutout values, released after the close yesterday, came in at $88.71, up 92 cents from Tuesday and up from $86.65 the previous week. This is the highest pork market since August 21st and the rally was led by a jump in loin prices to $101.41, which is up from $93.62 on Friday. Increasing weights had traders thinking that producers are a little less current with marketings with higher weights. Weekly average weights jumped to 272.2 pounds from 271.3 pounds last week and back up to the same level of last year. Weights were higher than normal last year, with the 5-year average weight near 268 pounds. Open interest pushed to a 14 month, low which might suggest that short-covering is part of the fuel for the current rally.
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