The market has seen a nice rally off of the February 24th lows but the upside appears limited as futures carry a premium to the cash market and the cash tone could weaken unless pork cut-out values begin to advance. Packer margins are deep in the red again and demand from the packer should begin to ease unless pork values turn up quickly. Pork values may be slow to advance if exports remain slow and this would push more product on the domestic market. April hogs pushed higher early in the session on Friday and to the highest level since February 17th due to higher cash hog prices and a strong stock market early in the day. Cash traded $1.21 higher early on Friday. However, there was a lack of new buying interest on the early upside break-out and weakness in the stock market and in cattle helped pressure the market to sharply lower on the session. The market managed to close slightly higher on the session and near the highs of the day. Cash was steady to $1.00 higher at many locations but the two-day sharp break in pork cut-out values late last week (down 91 cents late Thursday) helped spark the selling as well as the weak packer margins could dull demand in the cash market for this week. The Commitment-of-Traders reports showed the market in a slight oversold condition and somewhat vulnerable to short-covering if resistance levels are violated. Non-commercial traders (managed funds) still hold a hefty net short position of 8,948 contracts. Index funds continue to see a steady deterioration of a massive net long position from last year and there was more selling of 671 contracts for the week to reduce their net long position to 46,004 contracts. The CME Lean Hog Index as of March 4 came in at 57.36, up 77 cents from the previous session and up from 57.20 the week before. The estimated hogs slaughter came in at 422,000 head Friday and 102,000 head for Saturday. This brings the total for last week to 2.228 million head, up from 2.179 million last week at this time but down from 2.231 million a year ago. Pork cut out values, released after the close Friday, came in at $55.26, down 9 cents from Thursday and down from $56.35 the previous week.
TODAY’S GUIDANCE: The market is in a position to see a short-term set-back as pork values do not seem to be moving up much in order to rationalize the premium of futures to the cash market.
TODAY’S MARKET IDEAS: The technical action remains positive with close-in resistance at 62.55 and then 63.25. Support is at 60.55 and then 59.85. Look for a choppy to lower trend this week as the market absorbs slow exports.