MURICO.com Forum

The final Purchase Index for - - -

10-31-14 was only down -$0.76. Packers eased up on the rate that they are taking money off hogs. This enabled them to make a strong purchase at 114.4% of the moving average daily purchases. Relative to the index hogs, they made a very high purchase at 574K. It has been a long time since we have seen a one-day purchase of index of that magnitude. Apparently packers were needing hogs and producers were willing sellers.

The model projects that the component on the 10-31-14 kill will drop between -0.90 and -1.20 so we are still in a down trend which is not surprising with cut outs continuing to show weakness.

The ZZZs were only discounted to the CME Index component by 2.67 at Friday's settle. We have seen a lot of closure of the gap in the last couple of weeks and all of the closure has come from the Index dropping. In fact, not only has the Index dropped but the ZZZs have dropped as well. With the weakness in the cut outs, packers have been forced to cut their costs of product and I wonder is there more to come?

I am of the opinion that there probably is because:

- Cut outs are continuing to be weak

- Carcass weights are now climbing a little

- Packers had good numbers scheduled on Friday and made a solid purchase Friday with lower bid prices.

- Seasonally the kill rate almost always increases this time of the year

In tracking the data I see that the year over year carcass weight was running +8.34# on 9/2/14. It has now declined to +4.56# for a year over year drop of 3.78#. This may indicate that producers have liquidated about 300K of heavies. In addition the kill since the 9/1/14 report date is running about 155K below projections from the last H&P report.

If the H&P report was nearly correct on total numbers of market hogs but was off in the weight categories, there may be a back log of 455K more hogs to come to market. That is enough to pressure prices a little.

But -

It is possible that the H&P report over-stated the heavier weight categories and were correct on the lighter weight categories. That would mean that the kill rate is going to move up a little but will still run about 1.67% below the year ago level.

Oh! Dear! What's a gurl to do?

I tell you this, I'm going to be very cautious in the way I handle the ZZZs but will go with the seasonality and hold a couple of short ZZZs I already have and will watch the market action and try to scalp in and out from either the long or short side.

Seasonally there is a strong tendency for the GGGs to go premium to the ZZZs so I will hold the short Z/G spreads and hope my blood presssssure can take it. It usually does!

Best wishes,

dhm