While vulnerable to near-term technical bounces, the market still may need to absorb a hefty supply into the fall and a more intense break in the cash market than seasonally expected. The market closed moderately higher on Friday as traders holding shorts seemed to be feeling increased risk in holding positions and short-covering emerged to end the week.
October and December hogs saw solid gains Thursday night and the market stayed strong for much of the session Friday but there does not seem to be any short-term news which would help support the cash market. However, with the steep discount of futures to cash, it may not take much in the way of buying or short-covering to spark a bounce. The CME Lean Hog Index as of August 15th came in at 91.58, down 26 cents from the previous session and down from 93.59 the week before but this leaves October and December at a stiff discount.
Pork cutout values, released after the close Friday, came in at $91.19, up 36 cents from Thursday but down from $92.69 the previous week. Traders see rib values topping out as soon as retailers are covered for Labor Day holiday needs and traders are bracing for further weakness in pork values into September. Cash hogs were steady to $.50 lower on Friday and the trend looks to continue down in the weeks ahead.
Slaughter came in higher than expected at 415,000 head Friday and 80,000 head for Saturday. This brought the total for last week to 2.166 million head, up from 2.031 million the previous week and up from 2.050 million a year ago.
The Commitments of Traders reports as of August 14th showed non-commercial traders were net long 32,789 contracts, an increase of 950 for the week. Non-commercial and nonreportable traders combined held a net long position of 21,651 contracts, up 3,495 for the week and the buying trend is seen as a short-term positive force. Commodity Index traders held a net long of 92,918 contracts, down 2,656.
Weights are already well above normal for this time of the year and have actually increased for the past two weeks during a period when weights typically fall. The cash trend is down but the discount is providing support.