With cold storage stocks coming in at a monthly record high for the 6th month in a row, the market seems to have the short-term supply to offset any period of tighter supply into 2013. While supply will drop in 2013, the market will need to get through a period of rising supply just ahead before cash markets need to deal with tightening supply. The cash market has seen an impressive contra-seasonal rally in the past month and the market looks a bit vulnerable to a set-back in the weeks just ahead.
The CME Lean Hog Index as of October 18th came in at 84.13, up 39 cents from the previous session and up from 82.64 the week before. This leaves December at a discount to the cash and could help provide some short-term support.
Slaughter came in higher than expected at 435,000 head yesterday. This was up from 433,000 last week and up from 427,000 a year ago as this time. Pork cutout values, released after the close yesterday, came in at $88.64, down 41 cents from Friday but up from $87.86 the previous week. Ribs were down $5.02 to $127.93, which helped to pull average values down.
December hogs closed sharply lower on the session yesterday while June managed to close slightly higher on the day as spreads shifted and traders were active at liquidating long positions out of the nearby month. The market traded near steady early but came under speculative selling pressure late in the day. Cash hogs traded near steady as packers see the supply flow in-line with current demand, and this came as a bit of a surprise to some traders who saw new highs in pork product late Friday as a positive for cash markets. More and more traders seem to be expecting a more normal increase in short-term production into November, which may have sparked some long liquidation selling.
The monthly cold storage report was expected to show stocks near 620 million pounds but September 30th stocks came in at a record high for the end of September at 630.65 million pounds, which was up 28% from last year and up 8% from August. Cold storage stocks typically increase by 6% for the month so the 8% gain is seen as negative.
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