If you are looking for some excitement, the V/Z spread may be just the thing for you! On average over the past eight-years, from this date until the VVVs go to cash settlement, the spread has traded at +3.21. But that hardly tells the whole story. In that time interval it traded from a high of 15.3 three days before it went to cash settlement in 2014 to a low of -4.725 around 9/30/2017. On average during that eight-year period, it went to cash settlement at 6.89. In 2017 it went to cash settlement at -1.90 and in 2014 it went to cash settlement at 14.62.

The only year it went to cash settlement as a negative number was in 2014. If the high cash settlement and the low cash settlements are ignored, then the average cash settlements was 6.48.

What might we expect this year?

If the loss of hogs in Asia and Europe begins to cause the price of pork to go up between now and the first of October, most likely the VVVs will rise somewhat faster than the ZZZs and the spread will move higher.

If the heavy fall pork production burdens the market prior to the VVVs expiring, then the spread will most likely go down because traders will believe Chinese buyers will surface toward the end of the year as the impact of the ASF losses continues to reduce the number of hogs killed in China.

I believe Chinese demand will surface before the VVVs go to cash settlement and that will drive the V/Z spread higher at cash settlement so I am long the V/Z spread. I have a little space on my boat and will pile more on but not until they drop to -1.10.

Best wishes,

Doc