While the market saw some impressive technical action yesterday, cash market news remains negative with high weights, higher than expected slaughter pace, weakening pork product demand and a seasonal jump in available supply all helping to keep the cash market in a steady downtrend. However, the stiff discount of futures to the cash market is helping to support periods of short-covering and bargain buying from speculators.
The CME Lean Hog Index as of August 27th came in at 84.80, down 97 cents from the previous session and down from 89.62 the week before. This leaves October futures at a 1100 point discount to the cash market, which is not as wide as the 2000 point discount a few weeks ago but still wider than the 5-year average for this time of the year at 630 points.
Pork cutout values, released after the close yesterday, came in at $82.59, down 67 cents from Tuesday and down from $86.58 the previous week. This is the lowest pork value since June 1st.
Weekly average weights for Iowa-Southern Minnesota as of August 25th came in at 268.6 pounds, up from 267.7 the previous week and up from 263.5 pounds last year. Higher than normal weights are a surprise for the market given $8 corn and the data suggests that there may be a few hogs backed-up in the country. If so, this could cause short-term slaughter to come in higher than expected.
October hogs closed moderately higher on the session yesterday after choppy and two-sided trade. A turn up in cattle and talk of the oversold condition of the market sparked short-covering to support the market to trade higher. The steep discount of futures to the cash market added to the positive tone.
Cash markets were steady to $1.00 lower on recent large producer marketings plus one less slaughter date for next week, which means packers need less live inventory.
Slaughter came in above trade expectations at 432,000 head yesterday, and this has been a common occurrence in the past several weeks. While the recent USDA Hogs and Pigs report would suggest that weekly slaughter should be running 1-2% above last year, slaughter has come in near 6% above last year in recent weeks. For the week so far, slaughter has reached 1.295 million head, up from 1.272 million last week at this time and up 3% from last year.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.