for 8/29/14 was down $0.74 and the model projects that the component on the 8/29/14 kill will drop between -0.75 and -1.05.
There are a few clues beginning to surface suggesting that the down trend in the CME Lean Hog Index may be coming to an end or at least it is slowing. Packers still have quite a large inventory of hogs purchased at lower prices that will keep the Index under pressure for a few more days.

Cutouts have bounced a little the past couple of days and the bounce comes after retailers had stocked up for the holiday. The kill last week was down 10.37% from the same date last year but this may be skewed because Labor Day was very early this year.

There has been a huge swing in the VVVs to CME Index spread. The VVVs are now premium to the index by 1.54 after having been discounted by around 16 points. The dynamics still seem to be right for a lot of volatility in the VVVs. I just have this feeling that the Index is going to ease a little by the time the VVVs go to cash settlement like it generally does. There continues to be a lot of uncertainty relative to the inventory of market ready hogs in producers' barns.

I keep looking at the kill rate trailing the projection from the last H&P report. B. H. wonders if gilt retention is part of the equation. It very well could be. The dynamics seem to be right for producers to expand:

1. Cattle numbers are down and prices for beef cuts is at record high levels.

2. Corn and meal prices are cheaper than they were.

3. Broiler production has not expanded very much and there may be some egg-hatch problems.

4. Producer margins are still favorable.

The model shows that the kill since 6/1/14 is 773K below projections from the H&P report. At 6/1/14 the breeding herd was 5.835 million down 0.5% year/year. If one third of the negative kill projection since 6/1/14 represented gilt retention, the breeding herd at 9/1/14 could shoot up by 5.1% on the next H&P report.

I find it very difficult to project gilt retention but the lower-than-projected kill since 6/1/14 has numbers in place that could wind up as a larger breeding herd on the next H&P report.

It could also be the fore-runner of a collapse in the kill rate if the USDA over-counted hogs.

It could also be the fore-runner of an increase in the kill rate if producers have fallen behind in their shipments.

I don't know where we are headed but I will be watching trying to get a handle on hogs numbers.

Best wishes,

dhm

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