August hogs closed higher on the session yesterday, reaching the highest price levels since April 20th. The market rallied in spite of a weaker macroeconomic tone and weakness in the cattle market. Cash hog prices in the Midwest were as much as $2.00 higher, with traders projecting steady to higher trade again today. The excessive heat across the Midwest during the past two weeks may be taking a toll on production levels, and the surge in pork values to another record high overnight could help improve packer margins. Both factors are expected to support higher cash markets into next week. Pork cutout values released after the close yesterday came in at $102.34, up $1.03 from Tuesday and up from $99.43 the previous week. Once again, this would be a new all-time high. Another jump in loin prices and firm ham values supported the cut-out. Weekly average weights for Iowa-Southern Minnesota as of July 23rd came in at 263.7 pounds, down from 266.6 pounds the previous week and down from 268.4 pounds last year. A sharp drop in weights is widely seen as a factor which will cause pork production to come in below expectations. Some traders indicated that pork prices in China softened this week, and that could be a factor that reflects a modest shift in demand away from higher price pork for cheaper poultry. This was said to be the first weekly decline in hog prices since April. China has issued new measures to help fight inflation focused on pork production and pork storage in hopes of stabilizing pork prices and inflation. Local governments are urged to increase their reserves of pork to near a 10-day supply. Given the Chinese short-term supply situation, we would not rule out more pork purchases from the US. The CME Lean Hog Index as of July 25th came in at 98.67, up 1.17 from the previous session and up from 95.13 the week before. This leaves October at a significant discount to the cash market but an $8-$10 discount at this time of the year has not been uncommon for October futures. The estimated hog slaughter came in at 406,000 head yesterday. This brings the total for the week so far to 1.206 million head, down from 1.223 million head last week at this time but up from 1.166 million head a year ago.
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