8/25/14 kill was down 1.57 to 101.11. With the surge in the VVVs today, the discount to the index component has now closed to 6.16. That is more in line with historicals and can be closed with either an index move or a VVV move or a combination. There is enough uncertainty relative to supply and demand to keep volatility high for a while.

The six-day moving average carcass weight eased to 212.34 and that is +8.69# yr/yr. Packer hogs dropped more than non-packer hogs and the percentage of packer hogs killed rose to 33.69% yesterday. That is the highest percentage we have seen since 8/5/14. This may be indicating that packers are a bit aggressive in killing their hogs and that makes a lot of sense to kill their hogs and sell the pork while the price is high then purchase hogs cheaper thinking that pork prices aare going to continue to decline.

But -

Today traders are not thinking that pork is going to decline having moved the VVVs up nearly two bucks. Looking at the way pork is falling, ITZ, I'm a bit doubtful that a ten point rally is in the works for the VVVs. If it is, buying an Oct 100 call at 1.10 would be a good idea. We only got a five point rally last year and that came about in spite of the fact that cutouts dropped more than $3.00 between this date and expiry of the VVV.

Now that ITZ has spoken, don't look to me to sell you that call!

Best wishes,

dhm