The short-term trend in the cash market looks to remain down over the near-term and the seasonal increase in slaughter into the fall could be magnified by the increased flow of gilts and sows moving to the market. However, the market has already priced-in a large drop in the cash market into October, and this could help limit the downside in the market until the cash market catches up.
October closed 30 lower on the session yesterday with an inside trading session and December hogs closed unchanged on the day. Traders indicated that the steep discount and the oversold condition of the market helped to support the market early. However, weakness in the cash market, talk that the cooler Midwest weather will help support weight gains and might boost production and a strong rally in corn all helped to pressure the market.
Cash hogs were steady to $1.00 lower. Slaughter came in at 424,000 head, which was well above trade expectations. This can normally mean that packer demand for live inventory is strong but in recent weeks, the trade believes that slaughter is coming in above expectations as "extra" (female and breeding stock) hogs are moving to the market. Slaughter was up from 416,000 last week and up from 420,000 a year ago as this time.
Some traders see this week's slaughter as the highest since January.
The CME Lean Hog Index as of August 16th came in at 91.03, down 55 cents from the previous session and down from 93.29 the week before. This leaves October at a 15 cent discount to the cash market as compared with the 5-year average for this time of the year near 9 cents.
Pork cutout values, released after the close yesterday, came in at $91.65, up 46 cents from Friday but down from $92.36 the previous week. Another spurt in rib prices helped to support the cut-out yesterday but traders see rib prices seasonally peaking once the Labor Day bookings are complete.
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