Ideas that a low is in place for cash hogs and that pork production will decline in 2013 from this year due to a smaller breeding herd and declining farrowing intensions helped to support the solid gains yesterday. By late this year, slaughter should slip to below last years level and production looks to continue to decline for 2013. The data, however, did not show much of a decline in the hog herd or a significant decline in the breeding stock.

Cash markets were mixed but mostly steady as supply looks adequate to meet near-term demand. However, the market saw solid gains to close sharply higher on the day with fund trader buying noted. Traders also bought hogs and sold cattle and also bought deferred hogs and sold nearby. The market saw follow-through buying support after the neutral USDA Hogs and Pigs reports as traders see a slight decline in hog production from last year in the months ahead and 2013 production is expected to decline slightly.

Ideas that weights are lower than normal and that producers are current with marketings has traders expecting further gains in the cash market over the near-term. While the report did not show significant contraction or expansion in the industry, traders still see the smaller farrowing intensions as significant.

Slaughter came in higher than trade expectations at 437,000 head. This can sometimes indicate firm demand from the packer. This was up from 436,000 last week and up from 430,000 a year ago at this time.

The CME Lean Hog Index as of September 27th came in at 75.08, up 1.12 from the previous session and up from 68.93 the week before. This leaves December hogs right in line with the cash market as compared with a normal discount. Pork cutout values, released after the close yesterday, came in at $80.90, up 41 cents from Friday and up from $78.34 the previous week and is the highest pork market since August 31st. A further gain in ham prices has helped to support the cut-out and the upside in hams looks limited given hefty cold storage supply.

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