CME offers lean hog futures contracts on the Globex trading platform, which can be traded electronically through Schwab. Trading lean hog futures requires a futures account that has been approved.
What is the best way to trade lean hogs?
Through the equities market, there is no adequate way to get pure-play exposure to lean hog prices. The majority of lean hog farms are privately held or part of larger public enterprises that do other things.
Traders seeking exposure should go to ETFs that invest in futures rather than stocks.
Contracts for Difference (CFDs)
The use of a contract for difference (CFD) derivative instrument is a common approach to trade lean pigs. Traders can bet on the price of lean hogs using CFDs instead of holding the underlying commodities. The difference between the price of lean hogs at the time of purchase and the current price is the value of a CFD.
CFDs on lean hogs are available from a number of regulated brokers throughout the world. Customers make a deposit with the broker to serve as margin. CFDs offer traders the ability to gain exposure to lean hog pricing without having to buy shares, ETFs, futures, or options.
What are futures on lean hogs?
Lean Hog is a futures contract for hogs (pork) that can be used to hedge and speculate on pork prices.
The Chicago Mercantile Exchange (CME) is where Lean Hog futures and options are traded. Lean Hog futures contracts were first established in 1966. The contracts call for cash settlement based on the CME Lean Hog Index, which is a two-day weighted average of cash markets, and are for 40,000 pounds of Lean Hogs. The contract’s minimum tick size is $0.025 per pound, with each tick worth $10 USD. Price limits of $0.0375 per pound above or below the previous day’s contract settlement price apply to trading on the contract, with the exception that there are no daily price limits in the expiration month contract during the last two Trading Days.
Pork farmers in the United States frequently utilize lean hog futures prices as reference pricing in marketing contracts for selling their hogs. The use of marketing contracts tied to pork futures prices is correlated with the size of the producer and tends to increase. Furthermore, as part of a risk management strategy, hog producers frequently trade pork futures contracts directly.
Both the Bloomberg Commodities Index and the S&P GSCI commodity index, which are widely tracked in financial markets by traders and institutional investors, include Lean Hog futures prices. Because of its prominence in various commodity indices, Lean Hog futures prices have a significant impact on the results of a variety of investment funds and portfolios. Traders and investors, on the other hand, have become important players in the Lean Hog futures market.
As livestock futures contracts, lean hog futures contracts are sometimes lumped in with feeder cattle and live cattle futures contracts. Long feeding times, weather, feed prices, and consumer mood toward meat consumption are all fundamental demand and supply issues shared by these commodities, making grouping them together valuable for commercial talks regarding both the commodities and their futures contracts. This technique has been followed by commodity indices, which have categorized these futures contracts into livestock futures contract groups.
What is the smallest amount that can be traded in futures?
If you assume you’ll need to employ a four-tick stop loss (the stop loss is four ticks distant from the entry price), the minimum you should risk on a trade in this market is $50, or four times $12.50. The minimum account balance, according to the 1% rule, should be at least $5,000 and preferably higher. If you want to risk a larger sum on each trade or take more than one contract, you’ll need a bigger account. The recommended balance for trading two contracts with this method is $10,000.
How do I get started investing in hog futures?
Pigs can be purchased in two ways: as a lean hog futures contract (which is a contract for the hog’s carcass) or as pork bellies (traders’ slang for “bacon”).
What are futures on orange juice?
The FCOJ-A futures contract is the global frozen concentrated orange juice market’s benchmark contract. The contract specifies the price of physical delivery of US Grade A juice (graded by the US Department of Agriculture) in exchangelicensed warehouses around the United States. The United States, Brazil, Costa Rica, and Mexico are among the permitted countries of origin.
How do futures contracts work?
Futures are a sort of derivative contract in which the buyer and seller agree to buy or sell a specified commodity asset or security at a predetermined price at a future date. Futures contracts, or simply “futures,” are traded on futures exchanges such as the CME Group and require a futures-approved brokerage account.
A futures contract, like an options contract, involves both a buyer and a seller. When a futures contract expires, the buyer is bound to acquire and receive the underlying asset, and the seller of the futures contract is obligated to provide and deliver the underlying item, unlike options, which can become worthless upon expiration.
Why are the prices of hog futures so high?
From the pig dealers’ point of view: On Wednesday, US primal ham prices jumped $30.61, more than offsetting a $17.12 dip in ham prices and pushing the pork cutout value up $8.26. Despite the recent volatility in primal pork cuts, trade has been steady. Futures prices are rising as signs of improving cash hog fundamentals and retail demand emerge. Due to Covid-related slaughter plant slowdowns, pork supplies have tightened. Seasonal price strength is expected in the lean hog market as well, due to seasonal hog supply shortages. Lean hog futures are also benefiting from rising inflationary forecasts. Bulls in the hog market were encouraged by rising cattle and wholesale meat prices.
China’s pork production jumps 29% in 2021
Last year, China’s pork output for 2021 was 53.0 MMT, slightly lower than the 53.4 MMT produced in 2017, when the African swine fever (ASF) outbreak destroyed the country’s hog herd. In 2021, China slaughtered 671.3 million hogs, rising 27% from the previous year. At the end of December, the country’s hog herd stood at 449.2 million head, up from 437.6 million head at the conclusion of the previous quarter.
Hong Kong reports ASF finding
The World Organization for Animal Health (OIE) confirmed the presence of African swine fever (ASF) in a wild boar in Hong Kong’s northern region on Monday. This case has not been found to have affected any domestic pig farms, according to the report.
USDA Sec. Vilsack writes letter to WSJ re: meat inflation editorial
Secretary of Agriculture Tom Vilsack wrote: “Regarding your January 8 editorial, “Carving Up Biden’s Inflation Beef”: As the author says, this isn’t about compensating greater prices or a shortage of product. From beef to pork to poultry, the sector is driven by a few large corporations that use their clout to extract as much profit as possible and that profit isn’t trickling down to producers.
“I’ve gone around the country, meeting the hardworking ranchers and farmers who provide the country’s food. Producers in Iowa, for example, told me that cattle packers are making $1,800 per head while producers are struggling. The problem isn’t a shortage of product; it’s a lack of readily available solutions for manufacturers to get their stuff to market at a reasonable cost. Main Street, rural regions, and Americans across the country are all suffering as a result of this dynamic.
“Ranchers received more than 60 cents of every dollar spent on beef fifty years ago, compared to around 39 cents today. In 1950, hog farmers received 40 to 60 cents for every dollar spent, compared to around 19 cents now.
“This isn’t a new issue, but the epidemic exacerbated it and presented a fresh chance for huge corporations to increase profits. President Biden signed an executive order in July 2021 to foster economic competitiveness in the United States. Following that, the Agriculture Department began soliciting feedback from producers on ways to increase capacity and competition in the meat-processing bottleneck. The Action Plan for a Fairer, More Competitive, and More Resilient Meat and Poultry Supply Chain was released last week. We will not remain silent while these giant corporations continue to gouge consumers and establish unfair prices for farmers and ranchers based on their market share.”
China’s meat imports dropped 5.4% last year
In December, China imported 654,000 metric tons of meat, bringing the total for 2021 to 9.4 million metric tons, down 5.4 percent from 2020. Last year, China’s beef imports increased, while pork demand declined substantially due to a boost in domestic supplies as the country’s hog sector recovered from the African swine fever outbreak that began in August 2019.
What is the origin of the term “lean hog”?
The term “lean hog” is a technical term used in the commodities trade of pig products, most commonly through the Chicago Mercantile Exchange. The majority of edible meat extracted from a hog carcass is referred to as the term. Pork bellies, which are primarily used in the production of bacon, are traded and priced separately. Lean hog futures contracts are widely traded, and delivery dates are tied to the agricultural production cycle.
What is the cost of a lean hog contract?
The Agreement Each Lean Hogs futures contract is worth 40,000 pounds and has a price variation of $.00025 per pound, or $10 each tick. Monday through Friday, 8:30 a.m. to 1:05 p.m. Central Time, the contract trades (CT).
What is the weight of a lean hog?
Hogs are often bred twice a year in a continuous cycle to ensure a continual supply of meat. Pigs have a 3-1/2-month gestation period and an average litter size of nine pigs. At 3-4 weeks of age, the piglets are weaned. After that, the pigs are fed to maximum weight increase. Corn, barley, milo, oats, and wheat are the main ingredients in the feed. Oilseed meals are used to provide protein. Hogs grow 3.1 pounds per pound of feed on average. The average time from birth until slaughter is six months. Hogs weigh roughly 254 pounds when they’re ready to be slaughtered, with a dressed carcass weight of around 190 pounds and an average of 88.6 pounds of lean meat. The lean meat is made up of 21% ham, 20% loin, 14% belly, 3% spareribs, 7% Boston butt roast and blade steaks, and 10% picnic, with the remaining 25% made up of jowls, lean trim, fat, miscellaneous cuts, and trimmings. The CME Group is where lean hog futures are traded. There is no physical delivery of pigs because the futures contract is settled in cash based on the CME Lean Hog Index price. The CME Lean Hog Index is based on the average lean percentage level of killed hogs over two days.
Supply – The number of hogs on world farms declined by 11.7 percent to 677.595 million head on January 1, 2020.
The number of hogs in the United States increased by 3.0% to 77.338 million head on January 1, 2020.
China, with 49.4 percent of the world’s hogs as of January 1, 2020, was followed by the European Union with 21.91 percent, the United States with 11.4 percent, and Brazil with 5.6 percent.
Demand – In 2019, officially inspected hog slaughter in the United States increased by 4.5 percent year over year to 129.211 million head, a new high.
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