With the oversold technical condition and a massive discount to the cash market, the cattle market bounce this week helped to support a bounce in hogs overnight. However, weak pork product prices, higher than expected weights and the possibility that near-term pork production could be higher than expected has helped to pressure the market in recent days.
Pork cutout values, released after the close yesterday, came in at $92.80, down $1.45 from Monday but up from $91.91 the previous week. Weekly average weights for Iowa/Minnesota for the week ending August 4th came in at 265.7 pounds, which is up from 265.5 pounds the previous week and up from 260.8 pounds last year at this time. Seasonally, there is a strong tendency for weights to come down at this time of the year and near record high corn prices plus high Midwest temperatures would suggest that weights would be down significantly. The news is just another negative short-term factor for the market to absorb. The higher weights could suggest a few hogs are backed up in the country.
October hogs closed lower for the sixth session in a row yesterday and into new contract lows for the third session in a row. The market saw a strong rally early but gave back part of gains into the mid-session and the selling continued into the close. The stiff discount of futures to the cash market plus talk of the oversold condition of the market helped to support the early bounce.
In addition, talk that China was attempting to support pork producers through the purchase of frozen pork helped to provide some support. However, if China is buying meat in their own country, imports are likely to be sluggish at best.
The jump in pork cut-out values late yesterday plus talk that packer margins are in the black helped to provide for some early support.
Open interest continues to decline on the break suggesting that long liquidation selling has been active.
Hog slaughter came in well above expectations at 411,000 head. This brings the total for the week so far to 767,000 head, down from 806,000 last week at this time and down from 800,000 a year ago. The CME Lean Hog Index as of August 3rd came in at 95.28, down 26 cents from the previous session and down from 96.13 the week before.
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