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US Hog Inventory - Market on December 1
The market bounced off of contract lows from Thursday but the trend remains down and rallies still look like selling opportunities until there is a sign that export demand is picking up. The stiff discount of futures to the cash market combined with the oversold condition of the market leaves futures vulnerable to a near-term bounce. We need to point out, however, that we suspected that pork production would run about 4-6% above year ago levels in each of the past two weeks and production in both weeks was about unchanged from last year. With marketings below expectations we believed that average weights would show a significant bounce but this has yet to occur as well. For now, we have to assume that the recent Hogs and Pigs report is correct and this could lead to a jump in production over the near-term. Traders see the cash market trading $.50-$1.00 lower today. December hogs closed slightly higher on the session on Friday but near the lows of the day and near 150 points off of the highs. A jump in outside markets along with the stiff discount to the cash market and a pop in pork cut-out values Thursday evening helped support the strong gains early in the session. However, weakness in the cash market limited the buying support and ideas that production will remain high and exports will remain low helped to pressure. Cash hogs were $.50-$1.00 lower. The Commitments-of-Traders reports on Friday showed an aggressive short-covering trend from traditional trend-following fund traders who reduced their net short position by 7,593 contracts to just 2,304 contracts. The buying trend was somewhat offset by index funds selling 4,052 contracts for the week ending October 14th to reduce their net long position to 88,795 contracts. The market seems vulnerable to additional selling from fund traders “if” the downtrend in crude oil continues.
The pork cutout, released after the close on Friday, came in at $65.02, down 20 cents from Thursday and down from $68.58 the week before. The CME Lean Hog Index as of October 15th came in at 65.40, down 38 cents from the previous session and down from 69.74 a week before. The estimated hog slaughter came in at 429,000 head for Friday and 187,000 head for Saturday. This brought the total for last week to 2.348 million head, down from 2.375 million the previous week but up from 2.330 million a year ago.
