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The USDA news late Friday was not enough to change traders’ minds that the market needs to see a further liquidation of animals to come in more in line with recent or current demand. This may leave summer pork supplies burdensome to absorb; especially if there is no improvement in the export market. Pork values were higher again on Friday which might slow the selling. The recovery in the ham market is seen as somewhat of surprise with talk in the mid-session on Friday of weakness in hams. All Hogs and Pigs as of June 1st came in right in line with expectations (down 2%) and should have little impact on the opening today. The time period covered for the report (March-May) had only a few weeks after the H1N1 virus hit and the industry saw only a slight decline in size. Traders viewed the trade estimates for the report as negative for the price trend right up front. Ideas that “if” the report were to show a drop of only 2-3% from last year in the size of the hog herd that there would be a “need” for additional liquidation of breeding stock and market animals for the months ahead which could increase the short-term supply and pressure prices. While the breeding herd is down 2.7% from last year, efficiency (pigs per liter) was up 2% to offset much of the lower breeding stock. As a result, the March to May pig crop came in at 99.7% of last year and is up 2.4% over two-years. Any movement in cash prices for live animals or feed costs which could adversely impact margins are factors which could cause an increase tendency for producers to liquidate. The August hogs closed sharply lower on the session Friday and managed another new contract low just ahead of a key USDA report. The market saw some early support from positive news from pork cut-out late Thursday but sellers turned more active with talk of weaker cash markets this week due to a slower slaughter schedule for the week. Slaughter on Friday was only 394,000 head which was well below expectations and suggests weak demand. This pushed the total for last week to 2.032 million head, down from 2.062 million last week at this time and down from 2.140 million a year ago. While slaughter was down 5% from last year for the week last week, pork production was down only 2.6% from last year due to hefty hog weights. The Commitment-of-Traders reports, released Friday, showed that speculators were fairly quiet for the week ending June 23rd with the exception of the index funds who were net buyers of 2,412 contracts to boost their net long position to nearly 56,000 contracts. Trend-following funds increased their net short position slightly to 25,206 contracts as compared with the record net short position of 29,480 back in July of 2007. The market remains oversold technically. The CME Lean Hog Index as of June 24 came in at 58.94, up 15 cents from the previous session and up from 57.80 the week before. Pork cut out values, released after the close Friday, came in at $55.28, up 42 cents from Thursday but down from $56.38 the previous week.
TODAY’S GUIDANCE: Traders had believed that there could have been more liquidation of animals over the past three months but since this did not occur, the market sees a more significant reduction of the supply herd this summer which will mean a larger than expected pork production period. Resistance for August hogs comes in at 58.27 and 59.70 with 55.90 as next downside target.
