8/23/17 was down -1.32 to 78.75. The "Gap" has now closed to -15.93 with the VVVs at a discount to the component. Packers are getting serious about getting their cost of product down and protecting their margins. The model shows that the component will need to drop -0.46 per day to close the "Gap". The average drop over the past 8-days has been -72.7 cents. If packers continue to drop their bids at the rate, the cash settlement index for the VVVs will be 53.67.

The six-day moving average carcass weight firmed to 207.88#. That is +0.67# year/year. IT continues to appear to me that packers are backing hogs up. Packer hogs are about the same weight as non-packer hogs so it is ALL hogs that are being backed up. Index hogs are about the same weight at 207.85#. If hogs are being backed up as the numbers seem to suggest, the backed-up-hogs WILL continue to gain weight and that will compound the problem of excess pork production relative to where demand seems to be currently.

Seasonally hogs trend lower in the fall - everyone knows that.

But -

Traders have built a huge "Gap" between the underlying index and the VVVs that will get closed in 34-trading days. The dynamics are right to cause a lot of volatility and profits to those who get it right and problems for those on the wrong side. I'm just a tiny bit short the VVVs and have scalped a couple of times today. My boat is loaded with calendar spreads like I have never had before. I'm ready for some to get taken off ! !

Best wishes,

dhm