10/24/19 was down -0.29 to 64.95. The ZZZs settled essentially at the component at 64.425. Cutouts had a good day Friday rallying 2.03. That bumped packers' gross margins to $24.78/index hog. A nice improvement but doubtful it will send packer out chasing hogs aggressively. By the time the afternoon reports were released on Friday, packers had only purchased about 90% of the daily moving average daily purchases of hogs. Usually the Friday purchases will be in the 120% range. Most likely packers will have bought a lot of hogs after the afternoon reports were released. Hogs seem to be plentiful suggesting they will be holding the line on their bids The afternoon reports project the Purchase Index for Friday was down -0.85 and the component on Friday'skill will drop between -0.35 and -0.65.
The kill during the last three-weeks has been +5.94% year/year. From the last H&P Report the model projects the kill should have been up just 5.32%. If this means hogs are being shipped a bit faster due to rapid grown with cool weather and fresh corn, then the kill rate may back off about Thanksgiving time setting the stage for a rally just before the ZZZs go to cash settlement. If it means the USDA underestimated hogs in the last H&P Report, then the market may be burdened with a heavy kill rate for many weeks.
My bias is that hogs are finishing quickly and being pulled forward a bit.
The six-day moving average carcass weights firmed to 213.61#. That is +1.64# yr/yr. Index hogs were also heavier at 213.13#. Packer hogs were nearly the same weight as the non-packer hogs. The percentage of packer hogs in the kill mix has cooled a bit to the 38% to 39% range. Heavier hogs and lots of them means that packers are producing a mountain of pork.
It is no secret that on a global basis there is a shortage of pork compared to last year. It seems logical that China will begin importing substantial amounts of American pork since pork prices there are something like three times what they are here. Sometimes when politics are involved, logic get thrown out the window. I am choosing to be a bit bullish the hog market and have added a few summer futures during this latest dip. The robust activity in the calendar spreads is keeping me from getting my margin from be burned up too fast.
You may have noticed that Susan posted a note to me to contact her. She and her husband have the hosting service for this forum. When I contacted her she announced they have decided to retire and will end their service on 12/31/19 making it necessary for me to make a decision on whether to find a new hosting service, discontinue my posting, mover to twitter.
Best wishes,
Doc