Historical lean hogs futures price charts show that lean hogs prices have a traditional seasonal trend, at least in terms of US production and consumption.
As the majority of pig slaughters occur in February, the replenishment of supply via new farrowing trend prices upwards in the Spring until May. Summer meat consumption increases due to barbecues, baseball season hot dogs, and other seasonal activities, with the other price peak usually occurring in July.
Prices then tend to drop off for the remainder of the calendar into winter, as supply outstrips demand.
World’s Most Consumed Meat
As the world’s most widely consumed meat with over 60% of the global market, pork, in its many forms (bacon, ham, ribs, etc.) is traded in the lean hog futures market. As a component of the Chicago Mercantile Exchange (CME) livestock futures complex, lean hog futures started trading in 1966. Trading is conducted both electronically and by open outcry.
Contracts are settled in cash against the CME Lean Hog Index, which is a two-day weighted average of cash prices posted by the U.S. Department of Agriculture (USDA), and contract delivery months are February, April, June, July, August, October and December.
A lean hog futures contract equates to 40,000 pounds. With an average weight of 230-250 pounds at six months, it takes approximately 165 hogs to comprise a single contract. Pork farmers can rear large herds quickly since the gestation period for a litter of hogs is as little as four months.
China Loves Lean Hogs
Not surprisingly, China boasts the largest number of lean hog production, as they also consume about 45 million tons of pork meat annually, which is roughly half of global consumption. Chinese demand is the pre-eminent factor in lean hog prices, since they are also a large importer. Other major importers are Mexico, Russia and Japan. The United States, Canada, and European Union are the primary exporters of pork meat.
Study Historical Corn And Historical Lean Hogs Futures Price Charts
While hogs can are omnivorous and will eat a wide range of edibles, corn is often the base of porcine livestock feed, with soybeans being the next main ingredient.
Since the United States is the largest corn and soybean producer in the world, the Midwest states of Iowa, Illinois, Minnesota, Nebraska, and Indiana are, not coincidentally, the primary locations for American hog farms.
As a livestock commodity, hog futures are subject to feed costs, disease, and other supply and demand factors. Corn prices have a noticeable correlation with lean hog futures. Increased corn prices may compel pork farmers to cut feed costs, resulting in a proliferation of lighter hogs that can depress prices, followed by a rise in prices, as fewer herds and resultant decreased supply will command higher prices.
By-products Of Lean Hogs
The medical liabilities of high fat diets can affect demand. However, this is offset by the markets developed for other hog by-products, which can be used medically for skin grafts, heart valve replacements, and diabetes treatment as well as for leather.
Biggest Influences In Lean Hogs Price History
Chinese demand and corn prices are still the biggest variables influencing hog prices. A Wall Street Journal article from September 24, 2011 cited that increased ethanol demand has boosted corn prices, but sustained Chinese demand from overseas has continued to boost hog prices, resulting in record high prices, according to a University of Missouri professor of agricultural economics.
The swelling in prices has led to an unprecedented crime wave of hog thefts in Iowa. Traders should be wary though, since the profit margins for hogs have shrunken due to the feed costs, and the seasonal winter price drop can result in price turbulence if pork farmers are driven out of business.
|Standard Lean Hogs Contract|
|Per Contract Size||40,000 pounds|
|Price Quotation||Cents per pound|
|Minimum Price Fluctuation||$.00025 per pound ($10 per contract)|
|Termination of Trading||Trading terminates on the 10th business day of the contract month.|