October hogs appear to have put in a spike-bottom low and December hogs a double-bottom low with the recent technical action. The market seems to be in the process of recovering from an oversold condition and from the big discount of futures to cash.
The CME Lean Hog Index as of September 6th came in at 74.03, down 1.53 from the previous session and down from 81.89 the week before. This leaves the October discount at just 145 points. The spread was near 2000 points just a few weeks ago. With the heavy selling from producers and signs of some liquidation in the industry, traders remain concerned over the extent of a recovery bounce.
University of Missouri data shows sow slaughter for the week ending August 25th was down 6.8% from last year, which is a shift from the +3% jump seen for the four weeks ending August 25th. The portion of gilts in the slaughter mix was up 7.5% from last year.
The market closed sharply higher on the session as short-covering emerged to support the early bounce and the buying continued late in the session as weakness in corn helped to ease financial pressures on hog producers. The market traded slightly lower on the session into the pit opening but traded moderately higher on the day into the mid-session. The market is up as much as 262 points off of Friday's contract low.
Talk of the oversold condition and ideas that the recent break fully absorbed a normal seasonal decline in hog values helped to support the short-covering bounce. Weakness in pork on Friday afternoon and a weak tone to the cash market helped to limit the advance.
Slaughter came in well above trade expectations at 436,000 head. This was up from 2,000 last week and up from 423,000 a year ago at this time. Pork cutout values, released after the close yesterday, came in at $78.20, down 2 cents from Friday and down from $81.48 the previous week.
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