1/14/2020 was up +0.75 to 59.91. It appears the GGGs are going to settle premium to the component by about +7.82 today. That is still quite a "Gap". The model calculates that packers' margins on index hogs are at $31.67/Index hog. That is enough to make packer want to buy and kill index hogs.

The six-day moving average carcass weight was a tiny bit lower at 217.8#. That is +2.12# yr/yr. Index hogs were also lighter at 216.08#. Packer hogs are heavier than non-packer hogs by +2.83#. I think packers are finishing their hogs to a heavier weight because they think pork prices are headed higher. Considering the number of hogs that China has lost and the progress being made on the trade war, it makes sense for packers to buy hogs now and kill their heavier hogs later when the price of hogs is higher, after all we are in the chase for the next hog seasonality high having posted the seasonality low on 9/24/19 at 54.67. There is a strong tendency for the seasonality high to be posted around the 4th of July. Currently "The Market" is pricing the seasonality high to be about 87.80 about the time the NNNs go to cash settlement.

Last year the CME Lean Hog Index posted the seasonality high on 8/2/19 at 84.56 then quickly went into a down-hill slide and posted the seasonality low as pointed out above. The futures were quite wild with the NNNs creeping up to settle at 101.58 on 4/5/19 only to crash back to 70.62 at cash settlement. The QQQs followed a similar pattern posting a settlement-high of 102.00 on 4/16/19 then collapsing back to settle to cash at 79.34.

Last we knew that China was having quite a ASF problem but the thing I missed was that a lot of back yard producers were liquidating their herds to prevent losses due to the disease. This liquidation flooded the market with pork and the price crashed.

Things are different this year.

The back yard producers are mostly out of business so there will no liquidation bubble in pork production AND there will be NO PRODUCTION from the backyard producers who liquidated. It is possible, then, that the low production priced into the summer futures in April of 2019 when they moved above 100 will become reality this summer. It may not take the NNNs and QQQs above 100 again but it could move them above the 85 to 89 range where that have been locked for months and months.

So I will keep on HODLing a few summer futures, working the calendar spread, selling a little option premium and doing a scalping trade here and there hoping to keep the wolves away from the door.

Best wishes,

Doc