4/15/19 was up +0.95 and the model projects the component on yesterday's kill will be up between +0.15 and +0.45. The MMMs are now trading premium to the component by 18.52. That is a larger-than-usual "Gap" but not totally out of the ball park. Last year from this date until the MMMs went to cash settlement the index gained more than 25.00 points.
i noticed yesterday that the kill was unusually small being down 5.42% from the same period one-year ago. For sometime I have been fretting over the possibility that hogs are actually being pulled forward. When hogs get pulled forward, it oft times leaves a vacuum in the supply line of hogs that shows up later. The low kill so far this week and the firm bids packers were throwing out yesterday are consistent with hogs having been pulled forward. The lower carcass weights of the Index hogs has me scratching my head and wondering, "Is it Index hogs that have been pulled forward?"
If that is the case, the stage may being set for some mighty interesting times in the hog market.
Yesterday packers purchased 119.9% of the moving average daily purchases of total hogs and 105.4% on the Index hogs. Obviously packers were wanting hogs yesterday, they threw money at them and they got 'em. But what about next week or next month? The hogs for shipments then are already on the ground and higher bids will not increase the number; it merely determines who gets to kill them.
Here are some of the things i believe:
1. I believe the "Trough" to the last hog cycle was set at 45.30 on 9/3/18.
2. I believe this was also the "Seasonality-trough" for the 2018-2019 season.
3. I believe it will be one to two years before we see the "Crest" to this hog cycle.
4. I believe "The Market" is saying we will hit the "Crest" to this seasonality cycle about the time that the QQQs go to cash settlement.
5. I believe the uncertainty about the degree of Chinese hog losses and the subsequent import demand is going to be THE price determinant for the next year or two.
6. I believe the shortage of pork in China will lead to over-expansion of American pork production.
7. I believe China will eventually solve their ASF problem and when they do we will post the next Hog Cycle "Trough" and what a "Trough" it might be!!
This morning I piled two more NNN pigs on my boat at 101.65 to go with the load of calendar spreads that I try to keep on my boat and the other deferred futures I am HODLing. Today it is the Q/V spreads that are giving me some action. Yesterday it was the M/N19s and the M/N20s.
Best wishes,
Doc