MURICO.com Forum

The CME Lean Hog Index component on the kill for -

7/26/18 was down -0.97 to 72.99. The QQQs are now trading discount to the component by -9.34. The model calculates that the component will need to drop an average of -0.74 per day to close that "Gap". Over the last four days the component has dropped an average of -0.887 per day. The trajectory of the decline seems to be on track to close the "Gap" without having the futures bounce much -

But -

A lot can happen in the next 14 trading days.

This morning I pointed out that packers are buying fewer hogs the past few days. This may be backing hogs up a bit in producers' barns. The 6-day moving average carcass weight moved up to 207.23#. That is -0.44 yr/yr. Index hogs were also heavier at 207.88#. This is not the time of the year when backing up hogs works well for the producers. Packer hogs were about 1/2# heavier and they are now lighter than non-packer hogs by -1.09#. Over the past few weeks packers have been moving their hogs to market at a rapid clip. Packers know a lot better than I where prices may be headed and this may be a indication that the down trend is going to be severe.

"The Market" still seems to be looking for the "Trough" for this hog cycle and the summer futures are following the fall market down. While "The Market" searches for the "Trough", I will be building a portfolio of the summer futures. One of the underlying concepts for modeling production cycles is that producers will always expect existing prices to continue indefinitely into the future.

We are now seeing that play out in the summer-month futures with them all being down in what might be labeled "In sympathy" with the falling fall and winter futures. I want to build my portfolio very cautiously because the "Trough" for this hog cycle could be ten points or more below whcould bere we are.

On the other hand, today's decline could be the "Trough"; I just don't know but I did pile another long MMM pig on my boat at 70.60.

Best wishes,

dhm