lean hogs are not about to go the way of the bellies unless of course the hog market becomes much more vertically integrated with the packers owning most of the hogs.

I have not asked my model to make a projected cash settlement price on the ZZZs. The data coming in was just not consistent enough for it to make a projection that I would have any degree of comfort with. Maybe things will look better for the GGGs.

Those who know a lot more about hog production and marketing say that the sow kill rate doesn't mean much when it comes to projection or expansion of the hog cycle. Never-the-less, I watch it. My inclination is to think that producers are not expanding very much. Last year the breeding herd was up 3.16% in the December report and we have seen the kill this year come in significantly higher than last year.

We all know what this has done to the price of hogs.

One would expect these lower prices to dampen producers optimism a little. Of course cheaper feed has enabled producers to stay mostly out of red ink for most of this year but I don't think enough so to foster a lot of expansion. I do think packers suffered more from the PED epidemic than the non-packers. I believe this caused packers to add a few more sows to make up for their losses and this resulted in packers having a bit larger breeding herd. During most of the summer the percentage of hogs killed that were packer-hogs was not only quite strong but their weights were significantly heavier than the non-packer hogs.

That weight differential has now declined by quite a bit. Perhaps as packers were getting their carcass weights down, it added somewhat to the kill numbers. If my thinking is correct, this sets the stage for some mildly lighter kill weeks in mid to late January.

Traders have priced the GGGs premium to the index by +2.70. Last year on this date the GGGs were discounted to the Index by 3.89 at 84.55. When the dust settled and we went to cash settlement the GGGs had crashed all the way to 61.97 for more than a 20-point "ITZ" addiction down-move.

The fundamentals are much different this year and I can't imagine a 20-point move down from where we are now. On the other hand, with the index having been beaten down as low as we are now, I can imagine a 5 or ten point "ITZ" addiction move to the up side. I really don't think a twenty pointer "UP" is in the tea leaves. Oft times in the past the index has been stuck in a couple point range between early December and early February when the GGGs go to cash settlement.

Best wishes,

dhm