Ideas that the market might begin to see a more normal seasonal decline in prices into early December has helped to spark some long liquidation selling in recent days. April hogs have closed lower for four sessions in a row as traders rarely see April above 90.00 at this time of the year.
The USDA is projecting that 4th quarter pork production will increase by 740 million pounds from the third quarter, which is the second highest increase on record and compares with 300-600 million which would be considered a normal increase. The gradual climb in production is likely to weigh on cash markets, and that clashes with the current idea that a major low is in place for the hog market.
December hogs closed slightly higher on the session yesterday but down 80 points off of the mid-session peak. The market traded moderately higher into the mid-day as cash markets came in showing mostly $.50 to $2.00 higher trade. Traders indicate firm demand from packers who have positive margins and this, along with continued talk that supply could tighten has helped support the market. A turn up in the open interest and news from the COT report that fund traders were buyers for the week in Friday's update helped to support. The rally fell just shy of last week's highs and the market saw some profit-taking selling emerge. Bull spreading was active and it was hard to tell if traders were just turning sour on the huge premiums for the 2013 contracts or if traders feel that 2012 contracts are holding too much of a discount.
Traders see high beef prices as a reason to suspect firm pork demand ahead. Slaughter came in about as expected at 435,000 head. This was down from 437,000 last week but up from 426,000 a year ago as this time. The CME Lean Hog Index as of October 4th came in at 79.5, up 82 cents from the previous session and up from 75.08 the week before. This left December hogs at a 290 point discount, and this may have provided some additional support yesterday. Pork cutout values, released after the close yesterday, came in at $84.29, up 2 cents from Friday and up from $80.90 the previous week.
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