On the macro front, slowing global commodity demand remains a concern, especially with China data showing economy there has slowed down considerably compared to the torrid pace of last year. China growth was up 9.2% in 2011 and Chinese official forecast is for 7.5% this year. Some think real growth in China is even slower judging from alternative indicators such as rail cargo volume and electricity consumption. The situation in Europe also remains fluid, with the Eurozone expected to contract in 2012. Grain markets have turned lower, with corn futures down almost $1/bushel since their peak in mid August. With the corn supply numbers now well established, the market is focusing increasingly on the demand front. Feed demand is expected to pull back as expected, with egg sets declining to the lowest level since 1994, cattle placements in September down 19% and hog producers trying to sell hogs earlier than normal and retaining fewer gilts for sow replacement. Corn export data also shows a notable decline from last year. In large part this is due to increased sales from South America. The latest USDA report had Argentina+Brazil corn exports at about the same level as a year ago (34.5 million MT), while US corn exports for 2012/13 are estimated down 25% from last year (29.2 million MT). Some believe US corn exports could be down even more. For wk ending Oct 18, US weekly export corn sales were down 57% from last year, with cumulative sales for the marketing year down 48%. Corn use for ethanol also continues to track behind projections. In all, the spike in corn prices this past summer is having the intended effect, rationing out demand until the new corn crop is planted and harvested.

Hog slaughter continues to track about 3.2% above year ago levels. Despite the relatively heavy slaughter volumes, hog and pork prices have rebounded from the depressed levels of early September (see chart). We think this reflects some short term changes in retail ordering patterns. Dramatically lower pork prices provided opportunistic retailers with a high margin protein item at a time when beef prices are nearing all time record highs. Still, market participants expect that once the wave of buying subsides, prices should be seasonally lower into December.

An item to watch are hams. Normally ham prices hit their seasonal highs in late October and early November but then drift lower in December and holiday buying ends. Ham inventories are particularly high and as end users deplete them, this could weight more than usual on ham prices this December. Belly prices remain strong and will likely continue to track higher, in part because the lack of any other good hedging mechanisms has end users relying more on building up their inventories. As for next year, the market is tracking almost exactly with 2011 price levels as pork supplies are expected to pull back and high meat protein prices underpin pork demand.