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The CME Lean Hog Index component on the kill for -

9/19/19 was down -0.80 to 55.40. The VVVs settled premium to the component by +4.45. Cutouts posted a gain of +0.13, which, along with the drop in the component, boosted packers' margins to $28.98 per index hog. Packers are starting to do just fine but it is at the expense of the producers. Now that packers seem to have the upper hand, it is not likely that they will begin to bid higher until there is a significant surge in demand.

And that may be down the road a ways.

Something happened today that peeved the Chinese trade negotiation team that was in D.C. and the abruptly packed up their bags and headed home. So the trade war will be dragging on and on with prospects for increased exports to China seemingly being dim for a while.

This week packers processed 10.84% more hogs than they processed during the same week last year and they were heavier than last year by +2.18#. Lots of heavy hogs adds up to a mountain of pork that packers have to move out. The pork will be sold and someone will eat it; the question is, "Who and at what price?"

The six-day moving average carcass weight firmed to 211.20#. That is +2.18# yr/yr. Index hogs were also heavier at 210.92#. Packers hogs were lighter than the non-packer hogs by -1.61#. This suggests that packers have been showing a preference to kill their hogs and delay killing hogs they had to purchase. It is the producers of negotiated hogs that are really being killed.

The afternoon reports showed that packers were still bidding lower for hogs and the Purchase Index was down -0.79. The model projects the component on Friday's kill will drop between -0.60 and-0.90. This means we are still searching for the seasonality low. "The Market" continues to say it will be posted before the VVVs go to cash settlement. It would not surprise me to see market sentiment change and the VVVs fall discount to the component. We are producing a huge amount of pork and cool weather and fresh corn are just around the corner at which point the kill could move even higher.

I still have a pair of short VVVs on my boat, a handful of long QQQs and only a modest number of calendar spreads. Almost every day I flip a few calendar spreads.

Best wishes,

Doc