3/1/16 was up +0.12 to 66.82. The model hit it again. We may be on a mild up-trend. The JJJs are now trading premium to the component by +3.40. On average over the past six-years from this date until expiration of the JJJs, the index has dropped -5.62 mostly because of the -26.84 drop in 2014. If that one is omitted, the average drop moves to -1.65. The most it has gained was 5.09 in 2012.

What is this telling us?

It says there can be huge volatility from now until the JJJs go to cash settlement. This I can promise you, "We will not get a 26.84 drop like we had in 2014!"

Traders are saying we will get a gain of 3.40.

My bias is that the spring kill is going to decline enough to see the index tack on a point or two between now and when the JJJs go to cash settlement.

Here is why:

1. Cutouts are holding up fairly well.

2. The six-day moving average carcass weight has declined from215.66# on 1/13/16 to 213.16# today. Producers are probably quite current in their shipments. Producers of Index hogs may be even more current because their carcass weight is down at 212.45#. Packers seem to be letting their hogs - maybe they sense they are needing more product.
3. The last H&P report estimated that the inventory of market hogs is going to decline from last year's level and the kill coming in now is a bit less than implied from the report.

Now these are not wildly bullish numbers but just enough to make me feel that there may be a little more bullish than implied by the +3.40 "Gap" traders have built into the pricing of the JJJs.

Am I going to get long now and hold to cash settlement?

NOooooooo!

But I do have the mindset to try scalping from the long side when the market dips and I have been able to do a couple and just missed getting filled on an order I had working to buy one JJJ at 69.80.

Spreads are not doing much for me today.

Best wishes,

dhm