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The market looks poised for further losses over the near-term as a steady rise in fresh supply, record cold storage supply, higher than normal weights and weakness in pork values helps pressure. Seasonal declines in the cash market are expected to drag futures lower. For some reason, the market has not priced-in the strong seasonal tendency for cash hogs to decline into the fall which leaves plenty of room on the downside for a break. The monthly USDA Cold Storage report showed end of August frozen pork supply at 517.94 million pounds, up 3% from last year’s August record high but down 4% from the previous month. This was a little lower than expected but still a new record for August. Stocks normally decline by 3% for the month. Hogs closed moderately lower on the session yesterday and near the lows of the day as the modest rally early in the session failed to find follow-through technical support. October hogs moved to the lowest level since September 4th. A jump in hams and loins on the afternoon wire Monday combined with talk that the lower US dollar could support better exports helped spark the early gains. Cash hogs were steady to lower and traders remain concerned that higher slaughter levels and hefty weights will leave the market in a position to have to absorb higher and higher weekly pork production into November. Pork cut out values, released after the close yesterday, came in at $56.39, down $1.29 from Monday and down from $57.65 the previous week. This could help pinch packer margins and help pull cash hogs lower next week. The CME Lean Hog Index as of September 18 came in at 52.71, up 12 cents from the previous session and up from 51.77 the week before. The estimated hog slaughter came in at 435,000 head yesterday which was higher than expected. This brings the total for the week so far to 865,000 head, up from 854,000 last week at this time and up from 859,000 a year ago. Traders face a USDA Hogs and Pigs report at the end of the week and there does not appear to be much confidence that the hog supply is down enough to bring supply closer to demand for 2010. Traders see a drop of just 1% to 2 1/2% in the September 1st inventory. Breeding stock is expected to be down 2% to 3 1/2%.
TODAY’S GUIDANCE: The fact that the monthly cold storage report was not quite as bearish as expected should be more than offset by the weak pork cut-out market late yesterday. Look for more selling as the cash trend looks down into November. December hog selling resistance comes in at 50.15 with 46.90 as next downside target.
