confused, ITZ. The USDA made so many revisions to the previous reports that it has my head spinning as I try to sort through them.

I remain persuaded that the price of hogs will be where the supply curve intersects with the demand curve. Furthermore I believe packers are the primary purchasers of market-ready hogs and I suspect they are very large participants in the lean hogs futures market. Using that as a back-drop, it might be useful to consider where the packers are and what they are doing.

Packers have vertically integrated to the point that they are producing nearly 1/3 of the hogs slaughtered. Additionally as they go about their day-to-day purchases of hogs, I suspect they inquire of producers relative to the numbers of hogs in their barns. Furthermore they are in constant contact with retailers and other end users so they have an edge on the demand side of the equation.

In my mind, then, what packers are doing may be nearly as important as the H&P report.

So, what are packers doing?

As I watch the data, I think I see three measurable things:

1. They are selling the product on a USDA reported primal cut basis at a price of 80.97. That's 11.31 higher than one year ago. But this only represents about 12% of the product produced. So packers are selling 88% of the pork at a price we are totally in the dark about. Relative to the 12% we know about, they have a margin of 21.10 based on my calculated national average cost of carcasses. I believe that is an attractive margin and they can afford to keep the lights at at the level. The cold storage report shows the stocks of pork down 13% from last month and down 7% year/year so packers are actually getting the pork peddled and not just parking it in freezers.

2. Since 11/24/16 packers have bid the price of the CME Lean Hog Index up 10.39 to 58.28. Generally we don't see a run up like that this time of the year. Packers being able to move the product at a favorable margin is giving them an appetite for market ready hogs. From the afternoon reports on Friday the model was projecting a Purchase Index of +1.35 and a jump in the component on Friday's kill between +0.45 and +0.75. The bearish H&P report did not cause packers to bid lower. I try to keep an eye on the index because that is he thing we trade in the lean hog futures.
3. On Friday the USDA reported that packers were shipping their hogs +4.22# heavier than non-packer hogs. When I ask myself "Why?" the only reason I can come up with is that they want more pork. Packers are bidding higher for hogs and non-packer producers are pulling their hogs forward to the point that they are -2.72# year/year. It appears that packers are choosing to hold their hogs back a little and bring in the non-packer hogs. It smacks of the packers thinking the price of hogs are going up so they will retain theirs for the higher prices and kill non-packer hogs in the mean time.

At this point in time, ITZ, I choose to take my clue from what the packers are doing and my conclusion is that they are positioning themselves for higher prices. On Friday when the dip came, I added four more long GGGs. I was able to take profits on one and came through the weekend long five. Sure, I'm a little anxious about what I have done but I will sleep well tonight. I always do.

Best wishes,

dhm