Due to packer submission problems. In view of the fact that the cutouts were quite weak on Friday, I am expecting the Purchase Index to fall and that usually signals that the component will also decline. The ZZZs settle at quite a discount to the component -6.56. On average over the past seven years from this date to the ZZZs going to cash settlement, the Index only dropped -1.06. The maximum drop in the past seven years has been -5.25 and it actually gained 8.12 in 2016.

We need to keep in mind that historicals DO NOT determine price but the supply/demand factors here and now are the price determinants. Cutouts were weak on Friday and the packers ARE bidding lower. I am cautiously short the ZZZs and will add more summer futures if we get a dip today.

Best wishes,

dhm