The CME Lean Hog Index component on the kill for -

5/2/18 was up 0.18 to 63.01 putting the KKKs premium to the component by 4.24. The model calculates that it will take an average daily gain of 0.57 to close that "Gap". Over the past 12-days the component has gone up by 0.75 however it has only gone up 0.34 per day for the past six-days. It has been my observation that when there is a significant "Gap" when a contract becomes "Front Month" there is oft times quite a bit of "Gap" closing and then the closing tappers off. That has happened again this time so I am thinking it might be stretch to get an average daily gain of 0.57 from now until cash settlement.

But -

Sometimes packers get caught short-bought in front of the Memorial Day holiday and end up chasing hogs to meet the holiday demand. I don't think the numbers are pointing for that to happen this year and here is why I say that:

1. The six-day moving average carcass weight firmed to 214.52# which is +1.84# year/year. This suggests that producers may either have more hogs or that they have fallen behind in their shipments.

2. Packer hogs are +3.84# heavier than non-packer hogs suggesting that packers have ample numbers of market ready hogs they can ship if demand firms.

3. Packer hogs came in still heavier in this morning's report so the high killing percentage of packer hogs is NOT depleting their inventory of market ready hogs apparently.

When the KKKs surged this afternoon, I sold some more.

Over the past 200-days packer hogs have made up 32.95% of the kill but over the past 6-days the kill mix has been 35.0% packer hogs. Clearly packers have expanded their production capability and with the numbers of hogs they have ready to ship, they may be well positioned to hold firm on their lower bids.

As Blind Hog often said, "You pays ur money and takes ur chances!"

I'm taking my chances on the short side of the KKKs.

Best wishes,