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The market is still operating under the negative influence of the October 20th sweeping reversal to the downside but it will take a move under 52.10 December to confirm the near-term top. A serious corrective break is likely a good buying opportunity for February hogs but December premium is rich and pork production is likely to be on the rise in the weeks just ahead. Pork cut-out values, released after the close yesterday, came in at $54.88, down 60 cents from Tuesday and down from $55.90 the previous week. This may come as a bit of a negative surprise for the market. December hogs pushed sharply higher on the session yesterday recovering from a sharp break from Tuesday. A break in the pork cut-out values and a weaker tone to the cash market yesterday failed to pressure as traders believed that the break Tuesday was overdone and that the lower US dollar may help spark exports ahead. Traders believe that the H1N1 virus detection in a hog in the US will have no impact on demand. Strength in cattle and in other commodity markets added to the positive tone. The CME Lean Hog Index as of October 19th came in at 51.68, up 17 cents from the previous session and up from 50.63 the week before. This leaves December futures at a premium to cash and cash markets typically are in a downtrend for the mid-October to mid-November time frame. The estimated hog slaughter came in at 433,000 head yesterday. This brings the total for the week so far to 1.292 million head, down from 1.297 million last week at this time but up from 1.291 million a year ago. Weekly average weights for the week ending October 17th came in at 269.1 pounds, up from 268.9 the previous week and up from 266.2 pounds last year. The higher than normal weight just adds to pork production for the same number of hogs slaughtered.
TODAY’S GUIDANCE: The December hogs hold a $2.00 premium to the cash market as compared with the 5-year average at about a $2.00 discount for this time of the year. There may be less seasonal pressure this year than most but the quick break in pork product over the past few sessions leaves December futures vulnerable to a set-back into next week; especially if cash hogs push lower in the next few days. On the other hand, February hogs look like a buy on a break.
TODAY’S MARKET IDEAS: Look for good selling resistance for December hogs near 53.87 with support back at 51.20. February hog buying support is at the 57.92-57.12 level with 64.05 as a longer-term objective once export demand is restored.
