8/17/15 was up +$0.62 and the model projects that the CME Lean Hog Index component on the 8-167-15 kill change in the range of +0.15 to +0.45. It appears there is a nice bump-up in the index on the way.

In looking at the historical behavior of the Index going forward to the VVVs going to cash settlement, there tends to be an interesting pattern. On average between now and mid-September there is a tendency for the Index to drop twenty points or more only to rally by the time the VVVs expire so the net decline between now and cash settlement for the VVVs is a drop of about seven-points.

Now that is the average behavior.

But there is a great deal of variability from year to year.

In 2009 and 2010 there was a great deal of price stability all during this time period. Then in 2013 and 2014 there were sharp sell-offs in the index.

Currently the VVVs are trading discount to the index by 12.65 and the cutouts are far below where they were last year.

I think there is a good chance that traders have beaten the VVVs too low based on the experience of the past two years for a down trend to take place. Last year the index shed 22 points but it was coming down from 117.88 where it was trading when the QQQs expired. It is a whole bunch different to shed 22-points from that level than it would be to shed 22-points from the 78.73 we currently have on the index.

And so my hunch is to trade the VVVs more aggressively from the long side than from the short side. That being the case, I bought this morning at 65.875 and I have orders working to buy again if we get further price erosion. I might have bought more had I not been busy making this post!

Best wishes,

dhm