In my post of 8/29/14 I said, "There continues to be a dis-harmony between the kill rate since 6/1/14 and the USDA H&P report. My Hog Pricing Model is showing 648K fewer hogs killed than projected from the H&P report. At one point I was thinking that perhaps producers had fallen behind in their shipments. The smaller-than-expected kill has gone on so long that I now think their were 2.6% to 2.9% fewer hogs than the USDA estimated."

Sure enough, the USDA revised their numbers downward all the way back to the 9/1/13 report and they are telling us that, yes, in fact, producers have expanded the breeding herd by retaining about 65K gilts. This is not a huge increase amounting to just 1.1%. If there is some residual loss from the PEDv, this may give us no increase at all from the 2013 numbers but a little increase over the 2014 numbers.

This has dropped the kill short-fall since 6/1/14 to 166K.

Spread out over a 16-week period this is really not much and may simply represent the delayed shipments necessary for producers to be shipping hogs that are seven to eight pounds heavier than one year ago.

Based on this report, I expect to see:

1. The VVVs holding fairly firm since the USDA projects the 180# and up hogs are 5.7% below the year ago level and the VVVs are trading at a discount of 1.35 to the last CME Index component with 12-days to cash settlement.

2. The V/Z and Z/G spreads tending to be firm.

3. The ZZZs and the GGGs showing some weakness.

4. The K/M spreads mostly trading in the -1.0 to -3.0 range.

I'm glad that I covered most of my short Z/G spreads and wish I had covered all of them.

Best wishes,

dhm