October hogs closed 152 higher on the session yesterday, as many traders see the current futures discount as too wide. The hog market surged higher early to trade up nearly 200 points on the day into the mid-session with prices rising to their highest levels since August 3rd and is already as much as 267 points off of last week's low. However, the near-term cash fundamentals are expected to remain negative during the next few months as supply will increase rapidly and the market is still under threat to see "extra" female hogs move on the market due to higher priced feedgrains.
The CME Lean Hog Index as of August 9th came in at 93.29, down 30 cents from the previous session and down from 94.83 the week before. This leaves the October discount near 16.25, as compared with a seasonal peak near 10.00 on the 5-year average and a peak of near 20.00 discount for this year and for last year. Typically, the spread narrows to just a few hundred points by early September. Pork cutout values released after the close yesterday came in at $92.36, down 33 cents from Friday and down from $94.25 the previous week. This is the lowest pork value since July 31st. The lean index slipped 30 points lower to 93.29 but this still leaves October at a much steeper discount than normal for this time of the year.
Slaughter came in at 416,000 head, which was higher than expected and can sometimes signal better than expected demand from the packer. This was up from 356,000 last week and up from 411,000 a year ago as this time. Pork exports for June were 402.8 million pounds, which was down from 448.2 million in May but up from 373.7 million last year. While higher than last year, the monthly exports reached an 11-month low as exports to China and South Korea were slow.