Mon 19 Aug 2013 07:44:14 CT
With a record open interest and a record high net long position from speculators, the market looks vulnerable to long liquidation selling if the trend turns down. This is still a big "if" as futures already carry a steep discount to the cash market which means longs may not be too motivated to exit longs until the spread narrows. The CME Lean Hog Index as of August 14th was 102.56, up 7 cents from the previous session and up from 101.49 the previous week and this leaves futures at a discount of 1,585 points to the cash market as compared with the 5-year average discount of 1,092 points for this time of the year. October hogs closed 57 lower on the session but managed to close up 175 points for the week. Weakness in cattle, weakness in pork values late Thursday and talk of a large kill for the weekend helped to spark selling and lower trade on the day. Cash markets were steady to lower with talk of a larger seasonal supply ahead. Pork cutout values, released after the close Friday, came in at $103.23, up $1.27 from Thursday but down from $104.34 the previous week. A jump in loins and hams helped to support. Higher pork might ease pressure on the cash market.
Pork production for the week ending August 17th came in at 441.4 million pounds, up 7.7% from last week and up 0.9% from last year. Slaughter came in slightly above trade expectations (5th day in a row) at 419,000 head with 70,000 Saturday from 21,000 last Saturday. This brought the total for last week to 2.177 million head, up from 2.019 million the previous week and up from 2.176 million a year ago. Are extra hogs coming to market because of packer demand or a seasonal rise in supply? The Commitments of Traders reports as of August 13th showed Non-Commercial traders were net long 93,295 contracts, an increase of 3,563 contracts for the week and the buying trend is seen as a positive but the fact that this is a new all-time high net long position suggests an extreme overbought condition. The "combined" spec and fund Net Long position has hit a new record level at 76,007 contracts, up 3207 for the week. Commodity Index traders held a net long of 82,083 contracts, up 1,339.
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