MURICO.com Forum

The afternoon Purchase Index for - - -

9/4/19 was down -0.80 and the model projects the component on Wednesday's kill will drop between -0.80 and -1.10. The USDA reports that cutouts dipped by -1.74. The model now calculates that packers gross margins on index hogs stands at $15.39/hog. That is an improvement over some of the numbers we have seen lately but hardly enough to send packers chasing hogs in a wild and furious manner. Actually I am expecting the down trend in the CME Lean Hog Index to hang around for a while. Killing a lot of heavy hogs makes a pile of pork for packers to move out.

Worldwide there is probably plenty of hungry mouths to consume all the pork we have and then some. Overcoming the geo-political interference is the big challenge. China has been on a gravy train with us for a long time and they don't want to give it up.

The seasonality high of 84.68 set on 8/2/19 is holding so the search for the low continues. There is a powerful tendency for the low to be posted about the time the ZZZs go to cash settlement. If packers don't scare up some export business, it could be a bit lower than the 65.225 implied by the ZZZs.

When the M/N spreads spiked up last week I was selling. Most of them have met my profit objective but I am clinging to a couple looking for a bigger dip. On average over the past eight years the spread tends to trade around +1.00 then gradually drift back to about even. The average cash settlement for the past eight years has been -1.50 with a high of +4.46 in 2013 and a low of -11.70 in 2014. I have orders working to scale back into the short side beginning at +0.50. Some of the sows that will produce the MMMs are in the breeding pens now but probably not the NNNs. This means the price movement in these spreads will be driven more by technical/emotional factors than by fundamentals. If a powerful bull market develops in hogs, being short short the M/N spread could become a big headache.

Best wishes,

Doc