July hogs traded moderately higher yesterday as many traders see a continued tightening of supply into July and a strong rally in pork product prices this week. The market has seen an large rally and a seasonal decline in slaughter levels is helping to further strengthen prices but many traders are concerned that the upside may be limited without a significant improvement with the export market, as futures already hold a premium to the cash market and production looks to remain near 2% to 3% above last year's levels. Packer margins are still in the red, and this could cause sluggish movement through the pipeline if pork product prices does not continue to rise. Cash markets were steady to $1.00 higher. Loins recovered and fresh belies were stronger to support higher pork cut-out values this week. However, pork cutout values released after the close yesterday came in at $83.86, down 70 cents from Wednesday but up from $81.95 the previous week. Daily slaughter came in at 401,000 head, which was lower than expected and normally suggests weaker demand from the packer. However, some traders are talking of a sudden drop-off with market-ready supply, which many also be another reason for recent lower slaughter levels. This brings the total for the week so far to 1.616 million head, up from 1.266 million head last week at this time and up from 1.602 million head a year ago. The CME Lean Hog Index as of June 5th came in at 86.69, up 1.17 from the previous session and up from 84.51 the week before. Actual US pork production for the week ending May 26 came in at 428.6 million pounds, down from 440.4 the previous week and up 2.2% from a year ago.