HOGS: Choppy to Lower Trade; Premium to Cash Wider than Normal

The market remains in a short-term downtrend and the hook reversal on February 7 might suggest the start of a technical correction. Supply is coming in above last year and above the fourth quarter which is a contra seasonal bearish force. Hong Kong reported an outbreak of African swine fever on a farm near the border with mainland China. Traders will monitor the situation closely but it may provide some underlying support.

April hogs closed slightly lower on the session Friday after choppy and two-sided trade with a small range. The market is still trying to hold a premium to the cash market as the cash market has remained in an uptrend over the past week or so, weights are low and pork product prices have bounced.

The USDA pork cutout, released after the close Friday, came in at $79.33, up 52 cents from Thursday and up from $77.32 the previous week. The CME Lean Hog Index as of February 8 was 73.80, up from 73.75 the previous session and 72.85 the previous week. The USDA estimated hog slaughter came in at 481,000 head Friday and 93,000 head for Saturday. This brought the total for last week to 2.498 million head, down from 2.595 million the previous week and 2.513 million a year ago. Estimated US pork production last week was 543.9 million pounds, down from 567.4 million the previous week but up 2.4% from a year ago.

TODAY'S MARKET IDEAS

April hogs as of February 8th were holding a premium of 10.23 to the cash market as compared with a premium of 15.13 last year but the 5-year average premium is just 6.00. Close in resistance for April hogs is at 84.80 and 85.62, with 79.87 as next support. Key resistance is at 87.42.