Buying (Going Long) Lean Hogs Futures to Profit from a Rise in Lean Hogs Prices

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Broker!
    Perfect for beginners!
    Free Demo Account! Free Trading Education!

  • Binomo
    Binomo

    Only for experienced traders!

Contents

Buying (Going Long) Lean Hogs Futures to Profit from a Rise in Lean Hogs Prices

If you are bullish on lean hogs, you can profit from a rise in lean hogs price by taking up a long position in the lean hogs futures market. You can do so by buying (going long) one or more lean hogs futures contracts at a futures exchange.

Example: Long Lean Hogs Futures Trade

You decide to go long one near-month CME Lean Hogs Futures contract at the price of USD 0.6015 per pound. Since each CME Lean Hogs Futures contract represents 40000 pounds of lean hogs, the value of the futures contract is USD 24,060. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 1,350 to open the long futures position.

Assuming that a week later, the price of lean hogs rises and correspondingly, the price of lean hogs futures jumps to USD 0.6617 per pound. Each contract is now worth USD 26,466. So by selling your futures contract now, you can exit your long position in lean hogs futures with a profit of USD 2,406.

Long Lean Hogs Futures Strategy: Buy LOW, Sell HIGH
BUY 40000 pounds of lean hogs at USD 0.6015/lb USD 24,060
SELL 40000 pounds of lean hogs at USD 0.6617/lb USD 26,466
Profit USD 2,406
Investment (Initial Margin) USD 1,350
Return on Investment 178.2222%

Margin Requirements & Leverage

In the examples shown above, although lean hogs prices have moved by only 10%, the ROI generated is 178.2222%. This leverage is made possible by the relatively low margin (approximately 5.6110%) required to control a large amount of lean hogs represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

Learn More About Lean Hogs Futures & Options Trading

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Buying Lean Hogs Call Options to Profit from a Rise in Lean Hogs Prices

If you are bullish on lean hogs, you can profit from a rise in lean hogs price by buying (going long) lean hogs call options.

Example: Long Lean Hogs Call Option

You observed that the near-month CME Lean Hogs futures contract is trading at the price of USD 0.6015 per pound. A CME Lean Hogs call option with the same expiration month and a nearby strike price of USD 0.6000 is being priced at USD 0.0400/lb. Since each underlying CME Lean Hogs futures contract represents 40000 pounds of lean hogs, the premium you need to pay to own the call option is USD 1,600.

Assuming that by option expiration day, the price of the underlying lean hogs futures has risen by 15% and is now trading at USD 0.6917 per pound. At this price, your call option is now in the money.

Gain from Call Option Exercise

By exercising your call option now, you get to assume a long position in the underlying lean hogs futures at the strike price of USD 0.6000. This means that you get to buy the underlying lean hogs at only USD 0.6000/lb on delivery day.

To take profit, you enter an offsetting short futures position in one contract of the underlying lean hogs futures at the market price of USD 0.6917 per pound, resulting in a gain of USD 0.0917/lb. Since each CME Lean Hogs call option covers 40000 pounds of lean hogs, gain from the long call position is USD 3,668. Deducting the initial premium of USD 1,600 you paid to buy the call option, your net profit from the long call strategy will come to USD 2,068.

Long Lean Hogs Call Option Strategy
Gain from Option Exercise = (Market Price of Underlying Futures – Option Strike Price) x Contract Size
= (USD 0.6917/lb – USD 0.6000/lb) x 40000 lb
= USD 3,668
Investment = Initial Premium Paid
= USD 1,600
Net Profit = Gain from Option Exercise – Investment
= USD 3,668 – USD 1,600
= USD 2,068
Return on Investment = 129%

Sell-to-Close Call Option

In practice, there is often no need to exercise the call option to realise the profit. You can close out the position by selling the call option in the options market via a sell-to-close transaction. Proceeds from the option sale will also include any remaining time value if there is still some time left before the option expires.

In the example above, since the sale is performed on option expiration day, there is virtually no time value left. The amount you will receive from the lean hogs option sale will be equal to it’s intrinsic value.

Learn More About Lean Hogs Futures & Options Trading

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Lean Hogs Futures and Commodities

paul mansfield photography / Getty Images

Lean hog futures are critical hedging instruments for the pork industry and because of the volatility of hog prices. Trading in these futures often attract plenty of speculative positions. The lean hog is another term for pork that is traded on the options and futures exchanges of the Chicago Mercantile Exchange (CME).

Contract Specs

Some important characteristics of the lean hog futures contract are as follows:

  • Ticker Symbol: LH
  • Exchange: CME
  • Trading Hours: 10:05 a.m. to 2:00 PM EST
  • Contract Size: 40,000 pounds
  • Contract Months: Feb, Apr, May, Jun, Jul, Aug, Oct, and Dec.
  • Price Quote: price per pound
  • Tick Size: $0.00025 or 2.5 cents per pound = $10.00 (0.00025 x 40,000 lbs).
  • Last Trading Day: The tenth business day of the contract month

Fundamentals

Most hog production occurs in the Midwest. The largest hog producing states are Iowa, North Carolina, Minnesota, and Illinois. The U.S. is the world’s largest pork exporter. Typically, it takes six months to raise a pig from birth to slaughter. Hogs are generally ready for market or slaughter when they reach a weight near 250 pounds.

A market hog with a live weight of 250 pounds will typically yield 88.6 pounds of lean meat (Pork Facts 2001). This lean meat consists of an average of 21% ham, 20.3% loin, 13.9% belly, 3% spareribs, 7.3% Boston butt roast and blade steaks, and 10.3% picnic. The rest goes into jowl, lean trim, fat, and miscellaneous cuts and trimmings (USDA-AMS).

Pork bellies, which used to trade on the CME, are mainly used for bacon and can be frozen and stored for up to a year before processing. The contract was discontinued due to a lack of liquidity.

Seasonality tends to lead hog prices higher between May and July the heart of grilling season in the United States.

Corn and Hogs

The price of corn has a strong correlation with lean hog futures because hogs eat corn. If the price of corn rises substantially, farmers tend to take their hogs to market at lower weights (younger) to avoid high feed costs. At these times, lean hog futures prices tend to drop due to increased supplies.

One can estimate the future amount of hog production by monitoring the Hogs and Pigs Report. When the number of newborn pigs is lower than in previous quarters, it is likely that hog production will be lower in six months later when they are ready for market.

Reports

The Hogs and Pigs Report comes out quarterly. The hogs report presents data on the U.S. pig crop including inventory numbers and weights. The data highlights the current supplies and projected supplies for the future. The CME Lean Hog Index is a two-day weighted average of cash prices.

Developments Over Recent Years

Pork is a staple animal protein around the world. Over recent years, the hog futures market has experienced a great deal of price volatility.

In 2020, lean hog futures rose to all-time highs at over $1.33 per pound when porcine epidemic diarrhea or PED caused the death of over seven million suckling pigs, creating a pork shortage and caused the price of the animal protein to skyrocket. An effective immunization has prevented further outbreaks of PED. In 2020, the price of lean hog futures moved back to the 60 cents per pound level.

In 2020, the Chinese bought the largest U.S. hog processing company Smithfield Foods. While there was some opposition, the sale of the company was eventually approved by Congress, and now China controls an integral part of the U.S. and international pork market.

With over 1.3 billion people to feed, the purchase of Smithfield Foods is another example of China’s appetite for commodity resources around the globe. Pork is a vital animal protein and a staple in the diets of many people.

The world population has increased exponentially, and competition for food will continue to strain the fundamentals of lean hogs and other foods when supply shortages appear. Demographics are likely to cause new highs in many food markets during periods of tight supplies.

The Ultimate Guide to Lean Hogs Investing

Sharing is caring!

Last Updated on August 16, 2020

Lean hogs are the most commonly traded commodity product for gaining investment exposure to whole hog prices.

The importance of lean hogs is directly linked to the massive global pork industry. More people in the world consume pork than any other animal protein. Worldwide consumption of pork products exceeds 100 million metric tons annually and spans across diverse geographies, economies and cultures.

Companies and individuals involved in the production, distribution and sale of pork products use lean hog futures and options as tools for hedging risk. As a result, these financial products occupy a critical role in global food commodity markets.

How Do Farmers Produce Hogs?

Hog production involves three stages:

  1. Producing and raising young animals
  2. Feeding the pigs to slaughter weight
  3. Slaughtering and fabricating products from the animal

Successful production relies on proper animal husbandry techniques and good economic decision-making.

The hog industry has evolved dramatically in recent years as large private and corporate operations have replaced small family farms.

Farms with larger head counts (number of pigs) have at least two economic advantages:

  1. Lower production costs: Economies of scale allow farmers to feed pigs more efficiently and better utilize their labor.
  2. Negotiating leverage: Larger farms can enter into better contracts with packing operations – the companies that slaughter, process, pack and distribute hogs – since they can offer packers a more consistent supply of hogs.

Hog production takes place in five stages:

  1. Reproduction
  2. Gestation and birth
  3. Feeding
  4. Finishing
  5. Packing

Reproduction

Gilts (young females that have not yet given birth) and sows (mature female breeders) breed twice annually to ensure a steady flow of pigs for the operation.

Operators seek out gilts that show excellent growth, leanness and breeding potential. Farmers purchase boars (sexually mature males) from breeding farms.

Hog breeding takes place in one of three ways:

  1. Pen mating: One or more boars are placed with a group of sows.
  2. Hand mating: One boar is placed with one sow or gilt.
  3. Artificial insemination: A more labor intensive method that allows farmers to control genetics.

Gestation and birth

Female pigs have gestation periods of 4 months and give birth to average litters of 9 -10 pigs. This number has steadily increased in recent years due to improvements in health, genetics and production methods. Traders pay close attention to these yield figures as they determine the future supply of hogs coming to market.

Traders Pay Close Attention to Yields – Image via Pixabay

Weaning

Females wean baby pigs for three to four weeks. After this time, sows are either re-bred or sent to market. During the weaning stage, about 5% of pigs die from suffocation, disease, weather and other factors. Changes to this attrition number can affect supply and hog prices.

Feeding

Grains including corn, barley, milo, oats, distiller’s grains and wheat comprise the main diet of young pigs. Farmers often supplement the diet with oilseed meals and vitamins.

Grains Are a Popular Source of Food for Hogs – Image via Pixabay

Finishing

It takes about six months to raise a pig from birth to slaughter. A barrow (castrated male) or gilt typically gains on average about 1 pound a day during the finishing stages and will weigh about 270 pounds when they are ready for market. Producers usually sell pigs directly to packers.

Packing

Packers slaughter the pigs and butcher the carcasses into cuts that they sell to retailers. A typical 270 pound pig will yield a 200 pound carcass with an average of 25% ham, 25% loin, 16% belly, 11% picnic, 5% spareribs and 10% butt. Jowl, lean trim, lard and miscellaneous cuts and trimmings comprise the rest of the production.

Hog operations fall into four categories:

Type of Hog Operation Description
Farrow-to-Finish Handle all phases of production from birth to sale of a market-ready hog
Farrow-to-Wean Handle raising pig from birth to weight of about 10 -15 pounds and then sell to a feeder operation
Farrow-to-Feeder Raise hogs from birth to feeder stage (weight of 40 – 60 pounds) and then sell to a finishing operation
Finish Only Handle preparation of pigs prior to slaughter

Top 10 Pork Producers

Rank Flag Country Pork Produced per Year (1,000 Metric Tons)
#1 China 54,750
#2 European Union 23,350
#3 United States of America 12,188
#4 Brazil 3,755
#5 Russia 3,000
#6 Vietnam 2,775
#7 Canada 2,000
#8 Philippines 1,635
#9 Mexico 1,480
#10 South Korea 1,332

Top 3 Uses of Lean Hogs

Use of Lean Hog Description
Pork

Ham, pork loins and pork chops and are among the many food products produced from lean hogs. Pharmaceutical Co-Products

Pharmaceuticals rank second to meat in products obtained from lean hogs. The following are a small handful of the pharmaceutical products we obtain from hogs:

  • Cortisone
  • Blood Albumens
  • Heart valve replacements
  • Heparin
  • Estrogens
  • Insulin
  • Melatonin
  • Antidiuretic Hormone (ADH)
  • Oxytocin
  • Pespin
  • Thyroxin Industrial Co-Products

    Lean hogs make contributions to the production of many industrial products including the following:

  • Leather treatment agents
  • Plywood adhesives
  • Glue
  • Gloves and shoes
  • Buttons
  • Bone china
  • Bone meal
  • Brushes
  • Insulation
  • Upholstery
  • Insecticides
  • Cosmetics
  • Crayons
  • Floor waxes
  • Antifreeze
  • Plastics

    What Drives the Price of Lean Hogs?

    Some of the specific factors that move lean hog prices include:

    Feed Prices

    The cost of grains and feeds represents more than two-thirds of the production costs of producing pigs.

    Historically the price of livestock feed, especially corn, is inversely related to the price of lean hogs. As the price of corn rises, farmers take their hogs to market at lower weights to save on the higher costs. This creates an excess supply of hogs in the marketplace.

    Corn is such an integral part of the process of raising pigs that many farmers dependent on lean hog prices will hedge their exposure to corn prices. Traders looking to invest in lean hogs should keep a careful eye on grain markets and the factors that influence grain prices.

    Weather

    Extremely warm weather in the late summer and early fall can make hogs inactive and lessen their desire to mate. This could result in a smaller number of births in the winter months. The reduced supply can translate into higher prices at market in the following summer months when the pigs are taken to market.

    Hot Weather Can Make Pigs Inactive, Reducing Yield – Image via Pixabay

    On the other hand, cold winter weather can increase the number of births that take place in the spring months. Lean hog traders should pay close attention to weather patterns in key hog production regions.

    China

    China is a behemoth when it comes to pork production and consumption. The country produces and consumes about half of the world’s supply of pork products. In addition, China accounts for about 20% of the global supply of pork imports.

    As China continues its transformation into a world superpower, it will require more food to feed it growing population. The country will likely increase its volume of pork consumption as its population gets wealthier. Other emerging economies such as Mexico and South Korea may also have greater demand for pork as their economies get stronger.

    Substitution

    Pork competes with other animal protein products such as chicken, beef, lamb and fish.

    Many factors can impact which of these products consumers choose, but price often plays the biggest role. If pork prices rise, consumers may substitute other animal proteins in their diets.

    Other factors that could lead to substitution are the health benefits of the various choices. Hog farmers in the United States have made efforts to reduce the antibiotics used to produce pigs. In addition, the industry has changed the diet fed to pigs in an effort to produce leaner and healthier meat. How the public perceives these benefits can determine demand and price for lean hogs.

    3 Reasons You Might Invest in Lean Hogs

    Buying lean hogs can be a great addition to an investment portfolio for the following reasons:

    1. Bet on Demand from China
    2. Inflation Hedge
    3. Portfolio Diversification

    Bet on Demand from China

    Growth in Chinese demand for pork might be the best reason to invest in lean hogs.

    The global supply of pork has tightened in recent years as Chinese imports have risen sharply. If these patterns continue, there could be supply shortages and higher lean hog prices.

    Pork is a Key Ingredient in Chinese Cooking, Pushing Up Demand – Image via Pixabay

    Of course, the biggest determinant of demand in China will be the economy. However, pork has long been the favored animal protein in the country, and demand elasticity might be less than for other types of meat.

    Inflation Hedge

    Investing in lean hogs is a way to hedge against the loss of purchasing power from inflation. Livestock is almost certain to become more expensive if the world economy starts to overheat.

    Low interest rates from the Federal Reserve and other central banks have produced speculative bubbles in assets ranging from equities to high-yield debt to cryptocurrencies.

    Yet food remains the most basic and fundamental necessity. Food commodity prices could see the largest increases if the economy experiences higher inflation. Lean hog prices could benefit from these conditions.

    Portfolio diversification

    Investing in lean hogs might be a way to diversify a portion of a portfolio out of stocks and bonds and into commodities.

    Should I Invest in Lean Hogs?

    Lean hog prices are extremely volatile. Unlike crude oil or gold, the primary traders of the commodity are not speculators, but industry players hedging their risk exposures.

    Changes in weather, corn prices and demand from China, among other things, often create huge price swings. For this reason, traders may want to avoid taking large speculative positions in the commodity.

    However, traders might want to consider buying a diversified basket of commodities that includes lean hogs.

    Investing in a basket of commodities that includes lean hogs, other livestock and poultry, other agricultural commodities, metals and energy can provide a portfolio with protection against inflation. It could also insulate against large movements in individual commodities.

    Traders should also consider specifically investing in lean hogs because of the enormous importance of the Chinese market. Investing in lean hogs provides a way to participate in future economic growth in this huge economy.

    However, traders should also consider these three risks of investing in lean hogs:

    1. An economic slowdown in China could seriously limit demand for pork.
    2. Better hog breeding techniques and animal husbandry practices could create oversupplies of lean hogs.
    3. Health and environmental concerns could lead to decreases in pork consumption. In particular, hog producers have come under attack from environmental groups for waste and animal cruelty. Changes in perceptions about the industry could dampen demand.

    What Do the Experts Think About Lean Hogs?

    Pork industry experts are generally very optimistic about the prospects for lean hog prices in the future. Experts cite demand, especially from international sources, as the main catalyst for higher prices.

    We’re currently seeing so far this year in 2020, 15 percent more exports of pork, and it’s all going to foreign consumers. Strong demand is how we would explain the situation of more supply but even higher prices.

    – Chris Hurt, agricultural economist at Purdue University

    Chris Hurt Discusses the Hog Market – Image via YouTube

    Another expert shares this optimism and believes higher beef prices in the United States might fuel more pork demand.

    We’re pushing 4 percent more pork this year and 4 percent more pork next year. We’re going to be pushing those per capita offerings over 52 pounds per person [domestically], which is about as high as we’ve ever seen

    – Steve Meyer, vice president for EMI Analytics-Pork

    How Can I Invest in Lean Hogs?

    Investors have several ways to get investment exposure to lean hogs:

    Lean Hog Trading Methods Compared

    Leverage? Regulated Exchange? Lean Hog Futures 5 N N Y N Y Y Lean Hog Options 5 N N Y N Y Y Lean Hog ETFs (ETNs) 2 N N N Y N Y Lean Hog CFDs 3 N N N N Y Y

    Lean Hogs Futures

    The Chicago Mercantile Exchange (CME) offers a futures contract that settles into 40,000 pounds (18 metric tons) of lean hogs.

    The contract trades globally on the CME Globex electronic trading platform and has a variety of expiration months and cycles.

    Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, lean hog contracts are financially settled.

    Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

    Lean Hogs Options on Futures

    Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

    Options buyers pay a price known as a premium for each contract. An options bet succeeds only if the price of lean hogs futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in lean hog futures to profit from their trades.

    Lean Hogs ETFs

    These financial instruments trade as shares on exchanges in the same way that stocks do.

    There is one ETF that trades in London and invests in lean hogs:

    There are three US ETFs that invest generally in livestock:

    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.

    Best Binary Options Brokers 2020:
    • Binarium
      Binarium

      Best Binary Broker!
      Perfect for beginners!
      Free Demo Account! Free Trading Education!

    • Binomo
      Binomo

      Only for experienced traders!

    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.

    “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.

    Best Binary Options Brokers 2020:
    • Binarium
      Binarium

      Best Binary Broker!
      Perfect for beginners!
      Free Demo Account! Free Trading Education!

    • Binomo
      Binomo

      Only for experienced traders!

  • Like this post? Please share to your friends:
    How To Choose Binary Options Broker
    Leave a Reply

    ;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: