The big premium of futures to the cash market, record cold storage supply for the end of August and a continued outlook for higher slaughter ahead are all factors which may weigh on hog futures over the near-term.

December hogs closed 77 higher on the session Friday and closed up 107 for the week. The cash market in the Midwest was mostly $1.00 higher and this provided support. Futures traded moderately higher on the session but failed to take out Thursday's highs and ended with an inside trading session.

A jump in pork cut-out values from a near two-year low late Thursday helped support the market as traders continue to see the possibility of a near-term low in the cash market. However, futures have taken a steep premium to the cash market and this may be seen as a limiting factor for a continued bounce.

The CME Lean Hog Index as of September 19th came in at 68.10, down 47 cents from the previous session and down from 69.34 the week before. This leaves the October futures at a 770 point premium to the cash market as compared with a more normal relation near a 150 point discount at this time of the year.

Slaughter for Friday came in at 428,000 head and 240,000 for Saturday which pushed weekly slaughter to 2.406 million head, up 5% from last year. Pork cut-out values came in at 77.84, up 41 from the previous session led by improving prices for loins and hams. However, the monthly cold storage report showed a sharp increase in ham inventory. Frozen pork in cold storage as of the end of August reached 580.8 million pounds, up 31% from last year and up 6% from the previous month. Normally, stocks decline by 1% for the month so the 6% increase is considered bearish. This is the 5th month in a row in which stocks are at a record high for the month.

The Commitments of Traders reports as of September 18th showed Non-Commercial traders were net long 20,697 contracts, a decrease of 5,094 contracts for the week and the long liquidation selling trend was seen as a short-term negative force. Non-Commercial and Nonreportable combined traders held a net long of 8,989 contracts, down 5,225 contracts for the week and also a long liquidation selling trend. Commodity Index traders held a net long of 92,405 contracts, up 2,137.
 

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