3/15/18 kill dropped -0.38 to 65.33. The JJJs settled premium to the component by 0.12. That is not much of a premium but traders have the JJJs positioned much different than they ended last year. One year ago on this date the JJJs had settled at 68.00 but by the time they went to cash settlement they had slid to 62.12. And that happened in the face of cutouts being at 82.36. Now cutouts are down at 72.57. It appears that packers are in worse shape than they were one year ago.

Over the weekend I checked the kill since 12/1/17. Based on the last H&P report, the model projects that the kill since then should have been between 38.04 million and 38.125 million. It has actually been 38.327 million and that is something like 200K to 300K more than suggested by the last H&P report. There are two obvious explanations for this difference:

l. The USDA may have under-estimated the inventory of producers' hogs.

2. Producers have been liquidating their inventory of market hogs.

The ramification of these two scenarios can make a big difference in the price of hogs going forward. The fact that the weight of packer hogs relative to non-packer hogs has declined may be suggesting that packers have been moving their hogs to market at a fairly healthy clip and may have become somewhat more current in their shipments.

For months now the 6-day moving average carcass weights have been around two pounds heavier than one year ago. It does appear that packers are wanting heavier hogs to process but heavier hogs mean more pork. Last week pork production was reported at +4.2% higher than one-year ago but the kill was only up 3.47% so the heavier weights apparently made up the extra pork.

I'm flat the JJJs but am thinking perhaps I should get short to go to cash settlement. My boat is so loaded with calendar spreads that I'm not sure I need any more risk!

Best wishes,

dhm