1/29/15 was down again. This time by -$0.30. The model projects that the CME Lean Hog Index component on the 1-29-15 kill will shed between -0.35 and -0.65. For some time the numbers have been suggesting that producers are now in the expansion phase of the hog cycle and I have been to think-headed to realize it. Most likely we are a ways from the crest of the production cycle. It is now fairly easy to see that a year ago we were in the trough of the production cycle.

The first rather strong, definitive clue we had that we are in the expansion phase of the hog cycle was the 12/1/14 H&P report that showed the breeding heard +3.7%. That should have been a solid clue that it was time to get short hogs. Look what has happened since then:

GGGs down 13.10

JJJs down 10.60

KKKs down 7.55

MMMs down 6.025

NNNs down 4.675

I think we all know that the formula for expansion is:

Cheap feed + high producer profits = EXPANSION.

I have a friend who quotes his grandmother as saying, "If our foresight was as good as our hindsight we would be a damn sight better off!"

It seems to me there is a fairly good chance that the deferred months drop as much as the front month has so there is likely still plenty of opportunity to trade hogs from the short side. When hogs enter either the expansion phase or the contraction phase there is generally a long run before reaching the crest or the trough of the hog cycle.

I sold another GGG this morning and had orders to sell more but the rally failed before hitting my sell order.

Best wishes,

dhm

out on 12/23/14