made a significant move higher yesterday and it was mostly the packer hogs that got heavier (by a gain of 0.67# compared to a gain of 0.11# for the non-packer hogs.) I'm sure favorable finishing weather and fresh corn were partly the reason but it does indicate that there are good numbers in producers' pens.
That is not the only hint that numbers are now beginning to climb.
The number of hogs scheduled for delivery this week is nearly 90K higher than last week. The number of index hogs purchased on Friday at 500K is the largest number we have seen in one-day since 2/7/14. Last week 2.2% more hogs were killed than in the previous week and 2.3% more pork was produced.
This increasing level of production may be putting a little downward pressure on cut outs.
Yesterday was the fifth consecutive down-day they have suffered. So far the declines have been very small but they are down and not up.
I have observed over and over again when the fundamentals begin to line up like this for hogs to move one direction that the futures will make a fair-sized move in the opposite direction. I'm suspecting this happens because the Big Boys are washing out us little guys by running stops. If the ZZZs take a trip back to the 97 level, I will probe the short side. I'm a bit doubtful that the 104 to 105 level will be touched again, but it might be.
On the other hand, getting to 89 would give us a 10 point ITZ move down off the September 10th high of 99.00, a more likely scenario than getting a ten point bounce to 104. If we get the 10 point move down, I would suspect the Z/G spread would reverse and go from a +2.70 to something negative. Only once in the last eleven years have we seen the Z/G spread go off the board in positive territory and that was in 2004 when it expired at +1.155.
These high positive numbers for the Z/G spread going all the way up to +7.25 on 6/30/14 are historically out of character for the Z/Gs. On average it would be expected that the spread would be something like -3.0 when the VVVs expire not a +3.0.
Best wishes,
dhm
spread.ve.