The market remains in a steep downtrend but with the stiff discount, futures remain vulnerable to short-term corrective bounces. The CME Lean Hog Index as of August 21st came in at 88.65, down 97 cents from the previous session and down from 91.84 the week before. This leaves October at a 16 cent discount to the cash market. Last year, the discount was 14.6 cents at this time of the year and the 5-year average discount is 6.9 cents so the current spread is historically wide. While the discount provided some support, the sharp drop in pork product on Wednesday (down 3.3%) was enough to spark talk of continued weakness in the cash.
Pork cutout values, released after the close yesterday, came in at $87.05, up 47 cents from Wednesday but down from $90.83 the previous week. A bounce in ham prices offset weakness in other products. Actual US pork production for the week ending August 11th came in at 410.8 million pounds, up from 409 the previous week and up 5.28% from a year ago.
October hogs closed moderately lower on the session yesterday, while December closed slightly lower as the burdensome supply outlook was just too much for the market to overcome. A bounce in corn prices helped push hogs moderately lower on the day.
The cold storage report this week showed a little less supply than expected but also showed a record high for the month of July and total supply has been at monthly records for four months in a row. Stocks normally decline by 5% for the month of July so the 8% drop might have been seen as somewhat supportive.
Cash hogs were steady to $50 lower. The estimated hog slaughter came in at 424,000 head yesterday. This brings the total for the week so far to 1.696 million head, up from 1.671 million last week at this time and up from 1.667 million a year ago.
Weekly average weights are at 267.7 pounds, up from 266 the previous week and up from 262.5 pounds last year. With corn over $8, traders remain surprised that slaughter weights are still well above last year and the 5-year average. The data suggests that there may be a few hogs backed-up in the country.
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