7/16/14 was down $0.77. That is the first significantly lower Purchase Index we have seen since 5/29/14. Producers may not have liked lower bids because packers's total hog purchases were only 83.7% of the moving average daily purchases. There is an element of confusion here, though, because they got 102.4% of the moving average daily purchases of Index hogs.

The model projects that the CME Index component on the 4/16/14 kill will be nearly unchanged - in the range of -0.15 to +0.15. I get the impression that packers can opt to kill more expensive hogs they have already bought or less expensive hogs. This causes the projected change in the CME Index component to have a big miss from time to time. Usually the projection of fairly close.

The kill rate continues to come in somewhat lower than projected from the last H&P report. This may be because producers are being a bit slow to market hogs to add more pounds -

OR

It may be because they have fewer hogs than the USDA reported -

OR

A few extra gilts may be being retained to rebuild the herd a little -

OR

A combination of all three.

At this point I am in the camp who thinks that producers are a little short of market-ready hogs. I will be carefully watching the data to see if there is some clarity to this puzzle.

The Index often shows a little weakness following the Independence day holiday. "The Market" knows this and traders have this priced into the HEQ4s. They are now trading at a discount of 3.39 to the Index. If (and this is what I suspect) the inventory of hogs in producers is a little less than the USDA reported, then the QQQs will tack on a little to close their gap to the Index.

So-

I'm long a few QQQs. I was long some Q/V spreads but I took them to the bank yesterday. I'm planning on buying again on a little dip.

Best wishes,

dhm