Despite a lower close yesterday, a decent bounce off of the lows offers some idea that the market is proving more resilient to the global economic uncertainty. The supply side fundamentals are improving, but with the economic recession expected to extend well into 2009, the demand outlook is discouraging. Additional stimulus efforts in the US and abroad offer some hope of improving the demand outlook, but concerns over the ultimate cost of these efforts weigh against the optimism. The hog market pushed lower on the session yesterday and closed slightly lower but managed to recover much of the early losses and to close above the open, which could be a positive technical factor today. Iowa/Minnesota average hog prices jumped $1.80 to $53.48, which was seen as positive, but the stiff premium of futures to the cash was a limiting force. Ideas that the sharp break in the dollar could support better meat exports helped provide underlying support, but this was offset by weakness in pork prices late Monday.
The pork cutout, released after the close yesterday, came in at $56.34, up 27 cents from Monday but down from $56.70 a week ago. The CME Lean Hog Index as of November 21st came in at 52.04, down 21 cents from the previous session and down from 52.27 a week ago. The estimated hog slaughter came in at 439,000 head yesterday, which was a little bit above trade expectations. This brought the total for the week so far to 872,000 head, up from 870,000 last week at this time and up from 866,000 a year ago. Cash hogs are expected to trade stronger again today. Gains in cash hog prices in the Midwest over the past couple of sessions help alleviate some of disparity with the futures. That is needed to support the futures, otherwise the premium to cash could pressure the market.
TODAYS GUIDANCE: A decent bounce off of an early break yesterday and the close above the open suggest the hog market could gain today. Reduced hog supplies into the next year are a supportive factor, but demand is a concern with the global economic situation so tenuous. Yesterday the World Bank cut its forecast for China’s 2009 growth to 7.5%, which would be its slowest growth since 1990, but China adding additional stimulus overnight by cutting interest rates could help alleviate some concerns and improve the export outlook for US pork.