8/4/14 kill dropped -0.76 to 123.98. That puts the Index to QQQ gap at 7.78 with 8-days of data before we arrive at the cash settlement index. The model shows that it will take an average daily for each of those eight remaining days of -1.02 to get the index down to 116.20 where the QQQs are trading. In the last eight-days the component has dropped an average of -0.799 per trading day. This means that packers are going to need to become more aggressive in cutting their bid prices to knock the index down to where the futures are trading.

Can packers cut their bids by that much?

Absolutely!

From time-to-time we see packers make a 3.0 daily-drop to their bid prices.

Will they do it this year between now and when the QQQs go to cash settlement?

My bias is that they will not because:

1. The 6-day moving average carcass weight dipped to 213.36# (+10.36# yr/yr) suggesting that producers are becoming a bit more current in their shipments.

2. Cutouts held firm yesterday suggesting demand has not totally collapsed.

3. Grinding beef is in short supply and is trading at about a premium of more than a buck a pound over pork. That will drive some consumers to shift to pork.

There is one thing that concerns me and that is the fact that producers have not marketed as many hogs since 6/1/14 as the last H&P report suggested they should have. If this means producers have fallen behind in their shipments, when we could see a rush of a bunch of heavy hogs coming to market.

If it means that the USDA under-estimated the inventory of market hogs, we could see packers start searching to find hogs.

The next few days may give us a clue of which way we will head.

Best wishes,

dhm