MURICO.com Forum

The afternoon Purchase Index for - - -

8/16/19 was down -0.63 and the model projects the component on Friday's kill will drop between -0.50 and -0.80. The VVVs settled discount to the component by 16.86. If we get an ITZ twenty point drop in the index, the "Gap" closes just fine. When the cutouts dropped -1.97 on Friday, it took quite a bite out of packers' margins dropping them to $15.41/hog. We have to keep in mind that this represents between 10% and 15% of the pork packers sold. We are totally in the dark relative to how they fared on the other 85% to 90% of the pork they sold.

With their lower bids, packers purchased 145.7% of the moving daily average of total purchases and 108.2% on the index hogs. It appears that producers of index hogs balked a bit on selling at the lower prices. The problem is that we are heading into that season of the year when the supply of hogs tends to go up. There may be a little increase in demand as we move toward the Labor Day holiday but it is very muted compared to the Memorial Day and Independence Day holidays.

I have been scaling into the V/Z calendar spreads. That can be a rather scary thing to do this time of the year. Last year at this time the spread crashed below -4.0 so caution is advised. Last year the prospects of a strong holiday demand ran it back up to +14 after the crash.

Best wishes,

Doc

5