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The market fundamentals look bearish into the October to November time frame as traders brace for a seasonal increase in supply and added production “if” weights remain high. Traders seem hopeful that a full recovery in demand could help support a steady to higher cash trend into the fall and October hogs closed at a premium to the cash market. The 5-year average basis level for October hogs is 467 points discount for this time of the year. Pork cut-out values, released after the close yesterday, came in at $53.29, down 75 cents from Friday and down 7.8% from last week. This break has hurt packer profit margins and could slow demand soon. Ham prices fell to $45.00 yesterday, down $4.90 on the day and down from $51.67 on September 2nd. Traders were hopeful that the rally in hams could mean that exports are improving and the collapse in the dollar yesterday heightened these expectations. October hogs closed higher in 7 of the past 8 trading sessions and moved to the highest level since August 4th. Follow-through technical buying from the strong close last week along with a sharp break in the US dollar and a firm tone to the pork market on Friday afternoon helped to support the market. The market continues to discount the idea that supply will seasonally advance into the fall. The estimated hog slaughter came in at 432,000 head yesterday vs. 432,000 last week and up from 430,000 a year ago as this time. The CME Lean Hog Index as of September 3rd came in at 50.36, up 32 cents from the previous session and up from 48.56 the week before. The technical action has pulled traditional technical indicators to an overbought status. While slaughter was up 10.1% from last year, pork production was up 11.7% from last year as the extra weight his year has added to production totals. Sow slaughter is also on the rise and could add to the short-term bearish supply outlook.

TODAY’S GUIDANCE: The market continues to push higher led by expectations for improving demand ahead. However, current demand is slow, production is on the rise, average weights are still too high and H1N1 virus concerns persist. It seems like a year in which the cash market can push lower into the October to November time frame and it is hard to figure “why” the October is at a premium to cash.

TODAY’S MARKET IDEAS: Key selling resistance for October hogs is at 51.95 with 47.47 and 46.45 as downside objectives.

This content originated from – The Hightower Report.