MURICO.com Forum

The CME Lean Hog Index component on the kill for -

5/3118 was UP 0.70 TO 70.35, right in line with the model's projection. The MMMs are now trading premium to the component by +7.08. The model calculates that it will take an average daily gain in the component of 0.72 to close that "Gap". Can the packers sweeten their bids that much in ten days?

You bet they can!!

In 2012 from this date until cash settlement the index gained 10.17.

Next question:

Will they do it??

HHMMMmmmmm!!

Not sure. In 2008 from this date until cash settlement the index dropped -4.08. On average over the past 11-years the index has gained 1.80 from this date until cash settlement. It has been up five-years and down six. The average "Up" year has been +6.70 and the average "Down" year has been -2.28 Twice in the last eleven years the index gained more than 7.00. It appears that when a trend develops after Memorial Day that it continues until the MMMs go to cash settlement. I have decided to capture some of my profits and shed some of the risk but am still short the some MMMs.

The six-day moving average carcass weight firmed to 212.25#. That is +1.35# yr/yr. In mid-May it was 2.91#. Hogs may be finishing slower and producers are getting more current in their shipments. Index hogs were also heavier at 211.05#. Probably some of this weight increase is because of the non-kill holiday. Packer hogs are +4.29# heavier than the non-packer hogs. Packer hogs were up +1/4# and non-packer hogs were -1/2#.

Over the past 200-days packer hogs have made up 33.0% of the kill and for the past 6-days it has been 33.54%. It appears that packer have held back their hogs and concentrated on kill purchased hogs. Surely they knew prices were going up and they wanted to reap the benefit of the higher prices.

Historicals do not determine price but supply demand factors do. Yesterday the demand factor pushed cutouts up more than two points.

Best wishes,

dhm