LEAN HOGS

Oct hogs expired strong yesterday as we speculated they would. We had purchased a slug of the Oct 74 calls for 45 points which we took into expiration. The strong expiration is impressive and indicates that Dec hogs will move higher over the next 30-40 days. Dec hogs setback yesterday, we believe, off news out of China. Reports indicated the Chinese consumer price index during Sep increased only 1.6% and reports that the Chinese imported 16% fewer goods from Jan-Aug likely inspired the selling in Dec hog futures. Chinese government officials are keen on controlling inflation and pork prices in China make up a high share of the food component of the CPI. However, pork prices in China are powerful strong compared to U.S. pork prices. Pork prices (in China) rallied sharply in the spring and current wholesale prices are 89% higher than U.S. prices. If the Chinese economy ever develops any traction, we’re speculating that Chinese pork imports will increase rather dramatically. Our strategy is to purchase Dec hog calls.