October hogs moved to the highest level since June 9th on Friday and a positive tilt to the cash market this week could help support the uptrend. August hogs are holding a premium to the cash so the upside for this contract may be limited. A shift in packer profit margins from deep in the red to profitable is expected to support the cash market this week. Futures are in a temporary overbought condition after the recent rally but the surge in pork cut-out values suggests that the worst of the slow pork exports are now behind and the market should find good support on technical corrections. In fact, pork values are up 22.8% off of the late June lows so the futures rally is actually lagging the pork rally significantly. October hogs rallied slightly on Friday before speculative long liquidation selling emerged to spark a sell-off in the nearby August. The overbought technical condition of the market and ideas that futures have moved too far, too fast helped to pressure. In addition, the August contract led the weakness as the premium of futures to the cash market kept new buyers on the sidelines. Cash hogs were steady at most locations but the surge in pork values recently is expected to support an uptrend in cash next week. Pork cut out values, released after the close Friday, came in at $65.63, up $1.71 from Thursday and up from $58.18 the previous week. The Commitment-of-traders reports on Friday showed a surge in buying from trend-following fund traders for the week ending July 14th who reduced their net short position by 7,556 contracts to a net short of 22,361 contracts. The previous week was a record net short. Index funds were net sellers of 1,477 contracts to reduce their net long in hogs to 60,870. The buying trend from trend-following funds is a short-term positive force. The CME Lean Hog Index as of July 15 came in at 58.51, down 16 cents from the previous session and down from 58.97 the week before. The estimated hogs slaughter came in at 385,000 head Friday and 2,000 head for Saturday. This brings the total for last week to 1.954 million head, down from 1.957 million last week at this time and down 8.6% from last year. Feeder Pig imports from Canada for the year have reached 2.79 million head, down 24.0% from last year.
TODAY’S GUIDANCE: A tightening short-term supply and ideas that the export market is recovering has helped support the market. Cash hogs should push higher this week with improved packer margins.
TODAY’S MARKET IDEAS: October hog buying support comes in at 59.90 and 58.92 with 61.97 and 63.17 as resistance.