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Some increased concerns for the H1N1 virus problems in the fall and ideas that these issues will keep and maybe even increase the reluctance of foreign buyers to purchase US pork helped to drive the market to new lows early yesterday. Ideas that a vaccine shortage has nothing to do with pork or with the US export market for pork helped spark an impressive short-covering rally but the market could not close higher on the day. News of further weakness in cash bellies and loin prices late yesterday looks to keep the selling pressures in tact for the market today. Pork cut out values, released after the close yesterday, came in at $51.33, down $2.07 from Monday and down from $55.60 the previous week. This is the lowest cut-out value since January 8th of 2003 and compares with $92.12 last year at this time. The market saw a wild range yesterday as the early break to a new 7-year low was followed by a strong recovery to sharply higher on the day. The rally was impressive but the market could not attract new buying support on the move to a new 7-session peak and the market closed lower on the day after a 380 point range. Cash hogs were steady to $.50 lower on the session and are called steady/weak today. Short-covering was seen as the original reason for the rally but there is still a growing concern that the short-term production of pork will remain very high with extra weight on hogs and with extra hogs in the slaughter mix as producers trim herd size. The CME Lean Hog Index as of August 14th came in at 49.25, down 48 cents from the previous session and down from 53.11 the week before. This is the lowest level since January of 2008. The estimated hogs slaughter came in at 430,000 head yesterday which was higher than expected which is normally a positive force but not during a liquidation phase. This brings the total for the week so far to 860,000 head, up from 851,000 last week at this time but down from 861,000 a year ago. Pork production was up 6.9% from the previous week last week and up 7.5% from last year.

TODAY’S GUIDANCE: The move to the lowest level since January of 2003 for pork cut-out leaves the trend down in the cash market and can help rationalize the discount of October to the cash market. Traders await a further washout in the pork industry and further liquidation of breeding stock before expecting production to ease. The market did not receive the news to see any confirmation of a low despite the impressive bottoming-type action of October futures. It may take several weeks or more of liquidation to expect that future production will come in closer to demand.

TODAY’S MARKET IDEAS: The trend is still down with 42.55 and 42.10 as next technical swing objectives for October hogs but if pork remains under pressure, there appears to be plenty of room on the downside for the cash market. Another swing down for February hogs leaves 47.27 as next target.

This content originated from – The Hightower Report.
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