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Exports strong, but pork values dip to 2-month low

Hefty supplies, hog market weakness are seen as negative forces.

The hog market continues to probe for a low, as traders search for a low-enough price level to clear the backlog of supply.

The USDA pork cutout, released after the close yesterday, came in at $62.03, down $2.30 from Monday and down from $62.36 the previous week. This was the lowest the cutout had been since April 17. The main driver in the drop yesterday was a $10.34 decline in ham values. 
August hogs closed slightly lower on the session, yesterday, after choppy and two-sided trade, as the market recovered from the early sharp break. Some further hopes that the market has hit a short-term low continue to provide underlying support.

The export news has remained strong, and nearby futures continue to hold a premium to the cash market. However, the continued weakness in the pork market and the outlook for a hefty supply flow ahead are seen as negative forces. The USDA estimated hog slaughter came in at 469,000 head yesterday. This brings the total for the week so far to 921,000 head, down from 937,000 last week at this time and down from 960,000 a year ago. The CME lean index as of July 2 was 45.66, up from 45.02 the previous session and 45.23 a week before. 

Brazil pork shipments in June totaled 96,100 tonnes, up from 63,900 a year ago. Year-to-date pork exports rose 37% to 479,400 tons, and shipments to China jumped 150% to 230,700 tons. China will sell more frozen pork from state reserves, as it seeks to ease the recent price rise.

China has halted imports from dozens of overseas producers, and this is causing increased needs. They will sell 20,000 tonnes on Friday. China also offered 20,000 tons on June 23, bringing total sales from state reserves to 430,000 tons, so far this year. China's national average spot pig price as of July 8 was up 1.7% from the previous day. Prices were up 6.4% for the week, 6.9% for the month, 13% year to date and up 123% from a year ago. 

Market Ideas 

Unless pork values turn up, it may be difficult for August hogs to hold onto their premium. Short-term resistance is at 49.85, with 46.45 as the next downside target. A move under 47.70 for October hogs would leave 45.27 as the next downside target. December hog resistance is at 52.57. 

Live Cattle

With beef prices falling to their lowest level since February and cash cattle trading near the $94-$95 level, it may be difficult for August Live Cattle to hold above 100. August cattle closed slightly higher yesterday after trading lower for much of the session. The trading range on the day was small, and there was some technical selling early after Monday's weak close.

Cash live cattle traded in decent volume (for a Tuesday) at prices that were mostly steady with Monday and last week. In Kansas, 1,303 head traded at $94-$95 with an average price of 94.63. In Texas/Oklahoma, 1,516 head traded at $95.

The USDA estimated cattle slaughter came in at 119,000 head yesterday. This brings the total for the week so far to 234,000 head, down from 242,000 last week at this time and down from 239,000 a year ago. The USDA boxed beef cutout was up 58 cents at midsession, yesterday, but closed 16 cents lower at $205.30. This was down from $206.97 the previous week and was the lowest the cutout had been since February 21. 

Market ideas

With cash markets trading near $93-$95, August Live Cattle are attempting to hold a premium to the cash. Short-term production looks ample. August cattle resistance is at 100.90 and 101.90, with 97.72 and 96.77 as support. 

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