The CME Lean Hog Index component on the kill for -

5/14/18 was up +0.79 and the model projects that the component on yesterday's kill will be up +0.79 to 65.66. This is the other half of the cash settlement index and it puts the cash settlement index at 65.23. It surprised me a little to see the component show as much strength yesterday as it showed. Packers get to pick and choose which batch of hogs they process and it is no small challenge to try to second guess them. A few days ago I covered some of the short KKKs thinking I had wrung out most of the profit potential and that is how it ended up.

The MMMs are now trading premium to the component by +8.99. The model calculates that it will take an average daily gain in the component of +0.428 to close that "Gap". Over the past 10-days the average daily up tic has been +0.318. I'm a bit doubtful that will happen so I am still short some MMMs. I couldn't resist the urge to cover a portion of the short MMMs and add some money to my margin. I now feel free to buy dips and sell rallies until the MMMs go to cash settlement on 6/14/18.

The six-day moving average carcass weight eased to 213.83. That is +2.72# yr/yr. Both packer and non-packer hogs were down about 1/2#. Packer hogs are still running 3.99# heavier than the non-packer hogs. Index hogs are lighter at 212.82#. The data clearly points to a tightening supply of market ready hogs and that is what we almost always see this time of the year. The question is how strong is demand going to be as the supply shrinks. On average over the past ten-years from this date until cash settlement the index has gained 1.50. In 2112 it gained 13.45 and in 2010 it lost -10.36. With numbers like that, traders are going to be jumping at shadows in the dark as they try to guess how the the "Gap" closing waltz with turn out. My bias continues to be that we have an ample supply of heavy hogs to keep the index from surging 13.45 like it did in 2012 when packers got caught short-bought.

And we cannot overlook that fact that the supply of beef and broilers is fairly strong.

The 200-day moving average percentage of packer hogs in the kill mix was 32.93% and the 6-day moving average was 34.03%. This seems to suggest that packers have been preparing for a decrease in the supply of market ready hogs by finishing theirs to heavier weights and they seem to have more of them. The past couple of days packers may have been holding their hogs back a little and kill a few more non-packer hogs.

Best wishes,