Selling (Going Short) Lean Hogs Futures to Profit from a Fall in Lean Hogs Prices

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Selling (Going Short) Lean Hogs Futures to Profit from a Fall in Lean Hogs Prices

The price of Lean Hogs is 46.450 USD (per pound) today.

Will LH price drop / fall?

Yes. The Lean Hogs price may drop from 46.450 USD to 41.764 USD. The change will be -10.0881%.

Will LH price grow / rise / go up?

Will LH price crash?

According to our analysis, this can happen.

How to Make a Fat Profit From Lean Hog Futures

Commodity investors should consider pigging out on lean hogs. A record-breaking drop in global pork production will mean a massive shortfall of meat, which could spark a rally in hog prices of at least 20% by year end.

Market Data Center: Commodities & Futures

“There isn’t enough pork in the word to solve this shortage,” Shawn Hackett, president of Boca Raton, Fla.–based Hackett Financial Advisors, told Barron’s. “Certainly, it can go back and retest these highs we saw earlier the year, and it may not stop there.”

The price of lean hogs could hit $1 per pound or more by year end, up from about 80 cents recently. Prices reached a peak of around 99 cents in April before pulling back, according to Bloomberg data.

Investors looking to profit from the move could buy February-dated futures contracts for lean hogs on the CME futures exchange. Alternatively, they could buy the ETFS Lean Hogs exchange-traded fund (ticker: HOGS.UK), which tracks the price of lean-hog futures contracts.

The problem is that global pork supplies are expected to drop by the largest percentage ever, based on an analysis of data since 1960. This year, world output will be 108 million metric tons, down 4% from 113 million tons in 2020, according to data from the U.S. Department of Agriculture.

The production decline is the result of an outbreak of African swine fever in China, which is the world’s largest supplier and consumer of the meat, and elsewhere. There is no approved vaccine for the disease, which can kill infected pigs within a few days. “For hogs, it’s the equivalent of black death,” says Don Coxe, chairman of Chicago-based financial advisory firm Coxe Advisors.

While the disease is affecting herds across the world, the impact on China matters more than anywhere else. Last year, Chinese production accounted for 48% of global pork output, or 54 million metric tons. This year, China’s hog output will drop by 5.5 million tons, according to the USDA.

That drop is the direct result of the swine fever. Not only are infected beasts slaughtered and then burned, but the epidemic also has scared farmers into culling their herds.

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“China has tended to be reticent about the existence of the disease,” says Coxe. This cagey approach could have panicked farmers wanting to safeguard their investment in the livestock. It isn’t clear what portion of the herd was culled, but Hackett says it could be as high as 35%. In many cases, farmers would have chosen to send the beasts to the abattoir rather than risk them getting infected and becoming worthless.

Lean Hog Futures

Each year, 100 million hogs are brought to slaughter, a number only possible because of the movement to intensive, rather than traditional, pig farming. Because pork is one of the most widely consumed meats, the demand for pork is always strong and growing. Lean hog is the most common source for pork meat in the U.S., but the country that continuously ranks at the top for total consumption of pork is, without a doubt, China.

Lean Hog Futures Contract Specifications
Contract Size 40,000 pounds (˜18 metric tons)
Price Quotation Cents per pound
Trading Hours Monday 9:05 a.m. Central Time/CT-Opening. At 4:00 p.m. CT on Monday- Thursday, the markets halt and restart at 8:00 a.m. CT on the next morning. Friday 1:55 p.m. CT-Close
Minimum Price Fluctuation $.00025 per pound ($10 per contract)
Product Code CME Globex: HE
CME ClearPort: LN
Clearing: LN
TAS: HET
Listed Contracts February (G), April (J), May (K), June (M), July (N), August (Q), October (V) & December (Z)
Settlement Method Financially Settled
Last Trade Date 10th business day of the contract month, 12:00 p.m.
Trade At Marker Or Trade At Settlement Rules Trading at settlement is available for first 2 listed futures contract months, a calendar spread between the first and second contract month, and are subject to the existing TAS rules. The Last Trade Date for CME Livestock TAS products will be the second to last business day in the month prior to the named contract month.

Trading in all CME Livestock TAS products will be 9:05-13:00 Chicago time on Mondays or on the Tuesdays that follow a Monday holiday, and Tuesday through Friday 8:00-13:00, Chicago time.

TAS products will trade a total of four ticks above and below the settlement price in ticks of the corresponding futures contract (0.00025), off of a “Base Price” of 0 to create a differential (plus or minus 4 ticks) versus settlement in the underlying product on a 1 to 1 basis. A trade done at the Base Price of 0 will correspond to a “traditional” TAS trade which will clear exactly at the final settlement price of the day.

Note: No May contract or calendar spread with the May expiration as a leg will have TAS in Lean Hog futures.

Settlement Procedures Lean Hog Futures Settlement Procedures
Exchange Rules These contracts are listed with, and subject to, the rules and regulations of CME.
Source: CME Group

Lean Hog Facts

Hogs have a relatively short gestation period of about 3.5 months with the typical litter bearing 9 piglets. Therefore, hogs are bred twice a year continuously in order to ensure a constant wave of production. After about a month, the piglets are weaned from their mothers and fed a special diet to produce a quick weight gain. Hogs can gain up to 3 pounds every time they feed. When hogs are around 6 months old and reach a weight of over 250 pounds they are ready to be butchered. Each matured hog can yield around 190 lbs. of meat suitable for consumption.

China is responsible for nearly half of all pork production worldwide, however, the United States is the leader for pork exports. Japan was the world’s largest importer of pork in 2020.

Lean hog futures can allow traders to address price risk among those involved in the trade of lean hogs and to assess supply and demand of lean hogs for both the current and future outlook.

Last updated October 2020

Additional Info

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