The market seems to have been supported by continued concerns with a tightening global pork supply for 2013 and 2014 but the short-term supply fundamentals; the overbought technical condition and the stiff premium of futures to cash are all forces which may pressure the market over the near-term. The CME Lean Hog Index as of September 24th came in at 71.37, up 1.02 from the previous session and up from 67.68 the week before. December hogs normally trade at a discount to the cash market (5-year average discount is 463 points) as compared with the close at a 300 point premium to the cash market. This leaves futures vulnerable to a significant break "should" traders decide the current situation is closer to normal. The seasonal decline is caused by a normal increase in pork production from the 3rd quarter to the 4th quarter and the USDA estimate for this year shows the 2nd highest increase in production on record. The estimated hog slaughter came in at 436,000 head yesterday. This brings the total for the week so far to 1.309 million head, up from 1.307 million last week at this time and up from 1.281 million a year ago. Pork cutout values, released after the close yesterday, came in at $79.12, up 32 cents from Tuesday and up from $75.54 the previous week and is the highest pork market since September 11th. Loins and ribs were under pressure but cash bellies were up $6.83 to $113.18. Weekly average weights for Iowa-Southern Minnesota as of September 22nd came in at 270.2 pounds, up from 268 the previous week and up from 270 pounds last year. The jump in weights to above last year suggests producers are a little less current that the bulls expected. December hogs closed lower yesterday but managed a bounce off of the mid-session break as some commodity markets seemed to find underlying support after a very bearish commodity tone into the mid-session. The market traded slightly higher early but weakness in cattle and other commodity markets along with the premium of futures to the cash helped to spark long liquidation selling. Traders also noted increased technical selling after the reversal-action Tuesday. Cash markets were steady to $.50 higher on the day but many traders are hesitant to believe there is much upside left in the cash market unless pork values can push higher. Most traders seem to be looking for the quarterly Hogs and Pigs report on Friday to show September 1st inventory near 100.7% of last year with a similar to slightly higher number for kept for market animals. Kept for Breeding numbers are thought to come in near 99.7% and traders expect farrowing intensions to dip 1-2% under last year. The data suggests a very stable pork supply going foreword.
*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.
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