Last Updated on 21 September, 2020 by Therobusttrader

Lean hogs are the most commonly traded pork products on commodity exchanges, and it is the main source of pork meat in the United States. Since pork is the most widely consumed animal protein in the world, the global pork industry is very huge, and every year, more than 100 million hogs are slaughtered in different parts of the world.

Lean hog futures are perfect for traders and hedgers who seek cheap and quick exposure to the lean hog market. Lean hog futures trade on the CME with a contract size of  40 000 pounds, with a tick size of $10.

Due to the massive demand for pork, lean hog futures contracts are actively traded on the commodity exchanges, where hog farmers and the companies involved in the production, distribution, and sale of pork products come to hedge risk. The commodity is very important to the global meat industry.

Lean Hog Futures Contract Specifications
Symbol
LH
Exchange
CME
Tick Size
$10
Point Value
$400
Contract Size
40,000 pounds which is around 18 metric tons
Contract Months
February (G), April (J), May (K), June (M), July (N), August (Q), October (V) & December (Z)
Trading Hours
10:05 a.m. to 2:00 PM EST
Settlement
Financially Settled
Last Trading Day
10th business day of the contract month at 12:00 p.m.

 

Uses of Lean Hogs

Lean hog futures contracts are very popular in the commodity market because hogs are used in various industries. The common uses of lean hogs are outlined below.

Food: Lean hogs are the major source of pork meat in the world, and several pork products, such as ham, pork loins, and pork chops, are gotten from lean hogs. Pork is an important food source across different cultures and geographies.

Pharmaceutical products: Apart from the meat, other important products derived from lean hogs are pharmaceutical products. Many drugs and other products of medical importance are sourced from hogs, and here are some of them: heparin, insulin, estrogens, cortisone, antidiuretic hormone (ADH), blood albumens oxytocin, heart valve replacements, pepsin, melatonin, and thyroxin.

Industrial products: Lean hogs are also involved, in some ways, in the production of certain industrial products, such as glue, buttons, bone meal, insulation, brushes, upholstery, crayons, insecticides, leather treatment agents, gloves, cosmetics, plastics, antifreeze, plywood adhesives, and floor waxes.

The Largest Producers and Consumers of Lean Hogs

Hogs are reared in many parts of the world for meat production. The largest producer of pork meat is china, followed by the European Union and the United States. Other top producers include Brazil, Russia, Vietnam, Canada, Philippines, Mexico, and South Korea. Of those nations, the top exporters are the European Union, the US, Canad, and Brazil.

In terms of consumption, the country that continuously ranks at the top of the list of pork consumers is China, followed by the European Union and the United States. Other top consumers include Brazil, Canada, Russia, and Japan. Japan is also the largest importer of pork. Trades are mostly via futures contracts.

Why Trade Lean Hog Futures Contracts

Trade Lean Hogs

Trade Lean Hogs

There are different reasons for trading lean hog futures contracts. For some people, the reason may be to profit from short-term price fluctuations, while some others may be in the market to diversify their portfolio or hedge against inflation. Key stakeholders trade lean hog futures to ensure a stable market for their business.

Securing a good price: Hog farmers trade lean hog futures to secure a profitable price for their produce, while pork distributors and retailers buy the contracts to ensure a stable supply of pork.

Diversifying portfolio: Lean hog is a popular agricultural commodity that fund managers and investors use to diversify their portfolio away from stocks and bonds. Diversification is important in spreading risk exposure across many asset classes so as to minimize the effects of systemic risk.

Hedging against inflation: Central banks frequently lower interest rates and print more money, thereby reducing the purchasing power of paper money. As with other livestock commodities, the prices of lean hogs are almost certain to go up when the economy begins to overheat.

Speculative trading: Most traders in the lean hog futures market are there for speculative reasons. They aim to profit from the fluctuations in lean hog prices and only make short-term trades.

Lean Hog Futures Trading Strategies

Lean Hog Trading Strategy

Lean Hog Trading Strategy

Finding a trading strategy on the lean hogs futures market indeed is possible, and it’s a market we like to trade ourselves! In the image above, you see a trading strategy that we’ve been trading for quite some time!

If you want to build trading strategies for the lean hog futures market, we recommend that you have a look at our article on algorithmic trading. 

If you’re already building trading strategies and want some inspiration, then our edge membership is perfect for you!

How to Play the Lean Hog Market

The best way to play the lean hog market is by trading lean hog futures contracts. The Chicago Mercantile Exchange (CME) offers the contract, and it can be traded from any part of the world via the CME Globex electronic trading platform.

A lean hog futures contract is equivalent to 40,000 pounds (about 18 metric tons) of lean hogs, and the price quotation is in cents per pound. The contract normally expires in the months of February, April, May, June, July, August, October, and December, but expiration may vary. At expiration, the contract is settled with cash, so there is no issue of trying to avoid physical delivery.

To start trading lean hog futures, all you need is to create an account with the exchange through your futures broker and deposit the required margin. Since futures contracts are leveraged instruments, you need not have the full dollar worth of a contract before you can trade it. However, it is worth noting that while leveraged instruments can make you more money, they can be very risky.

Apart from trading the futures contract, there are other ways to play the lean hog market, such as lean hog options, lean hog exchange-traded funds, and lean hog CFDs.

Factors That Affect Lean Hog Prices

Several factors can influence the price of lean hog futures, and these are some of them:

Weather data: Hogs don’t tend to be very active when the weather is extremely warm, and this can result in fewer births and, subsequently, cause a shortage of hog supply. The reduction in supply can lead to higher prices of lean hogs in the market.

The price of feeds: The main chunk of the cost of producing hogs goes into buying feeds, so feed prices, especially the price of corn, have huge effects on the price of lean hogs — but in an inverse manner. To save cost, when the price of corn rises, farmers push their hogs to the market before they are due. The result is an excess supply of hogs and a decline in prices.

Key Reports: The United States Department of Agriculture (USDA) regularly releases some reports about hogs, and these reports tend to significantly move lean hog prices. Some of the reports include:

  • Hogs and Pigs Report
  • Monthly Slaughter Report

Lean Hog Futures Seasonality

Here is a seasonal chart of the seasonal tendencies on the lean hog futures market

Lean Hogs Futures Seasonality

Lean Hogs Futures Seasonality

Source

Conclusion

Lean hogs are a major source of pork — the most consumed animal protein in the world. The best way to play the lean hog market is by trading the futures contract, which is offered on the CME and its Globex electronic platform.

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