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The market seems to have plenty of downside potential just ahead “if” there is additional liquidation from producers. While we have seen a strong recovery in pork values and a decent bounce in futures, it is probably not enough to avoid further producer herd-reduction selling which will probably be forced by bankers. In addition, the lower than expected slaughter for the third day in a row this week is likely related to weak packer demand and not a lack of supply, and with hefty weights already, slower packer demand at a time when seasonal supply is on the rise is likely to lead to a further backup of market ready hogs in the country. October hogs pushed sharply lower on the session yesterday, as traders just did not believe that the industry can slip by without further liquidation of the US hog herd. The CME Lean Hog Index as of August 24 came in at 49.12, down 9 cents from the previous session and down from 49.02 the week before. This leaves October at only a slight discount to the cash market as opposed to a normal discount of 600-800 points for this time of the year. The estimated hog slaughter came in at 421,000 head yesterday. This brings the total for the week so far to 1.264 million head, down from 1.288 million last week at this time and down from 1.299 million a year ago. Pork cutout values, released after the close yesterday, came in at $56.05, down 32 cents from Tuesday but up from $51.69 the previous week. Average weights for the week ending August 22 came in at 267.2 pounds, up from 267.1 the previous week and up from 258.3 pounds last year. Feeder pig imports from Canada for the week ending August 15th came in at 86,664 head, down from 87,229 head the previous week and compared to a 4-week moving average of 114,748. Feeder pig imports for the year have reached 3.44 million head, down 21.0% from last year. A lack of much of a discount for October futures to cash despite the outlook for rising supply ahead added to the bearish tone.
TODAY’S GUIDANCE: Traders see the slowdown in slaughter this week as a reason to suspect slower packer demand, and this slowdown could cause a further backlog of market-ready hogs in the country, which could force weights even higher into the fall just as supply seasonally increases. Selling resistance for October hogs comes in at 47.92 with light support at 46.02 and 45.32. Keep 40.77 as longer-term downside objective.
