A firm tone to the pork product market and expectations of tightening supply ahead should support an uptrend in the cash market over the near-term and help to rationalize the steep premium of June to the cash market. Pork cut-out values are up 7.6% in the past week and could be just the start of a strong seasonal rally in the weeks just ahead. June hogs inched lower in choppy trade yesterday as the recent strength in the pork product market, namely loins, helped provide underlying support but traders remain nervous with the premium of June to the cash market which may have helped to limit the buying support. Ideas that the rally pushed the market to an overbought condition and the premium were seen as factors to spark some of the early selling. However, the premium is about the same as last year and about 200-300 points more than the 5-year average. The CME Lean Hog Index as of April 9 came in at 57.16, down 29 cents from the previous session and down from 58.04 the week before. The estimated hog slaughter came in at 290,000 head yesterday. This is down from 415,000 last week and down from 433,000 a year ago as this time. Pork cut out values, released after the close yesterday, came in at $59.99, up 51 cents from Friday and up from $55.74 the previous week. With trend -following fund traders holding a hefty net short position, it should not take much in the way of higher trade ahead to spark a round of significant short-covering. For February, pork exports totaled 341 million pounds as compared with 322.7 million in January and 390.67 million in February of 2008. Increased sales to Japan and Mexico helped offset a sharp set-back in sales to Russia and China.
TODAY’S GUIDANCE: The market seems to have the set-up to see uptrending cash markets in the weeks just ahead but speculators are nervous with the premium of futures to cash. The jump in pork values is promising.
TODAY’S MARKET IDEAS: Buying support for June hogs comes in at 73.85 and 73.22 with 75.90 and 77.97 as upside objectives. Buy breaks.