Hedging Against Falling Lean Hogs Prices using Lean Hogs Futures

Lean Hogs Futures – Price & Chart

Current and historical prices, chart and data for the CME Lean Hogs Futures #1 (LN1) contract. Contracts use the following methodology to allow long term price comparisons:

• Front Month
• Calendar-Weighted Adjusted Prices
• Roll on First of Month
• Continuous Contract History

We Need Your Support!

Backlinks from other websites and blogs are the lifeblood of our site and are our primary source of new traffic.

If you use our chart images on your site or blog, we ask that you provide attribution via a “dofollow” link back to this page. We have provided a few examples below that you can copy and paste to your site:

Your image export is now complete. Please check your download folder.

We Need Your Support!

Backlinks from other websites and blogs are the lifeblood of our site and are our primary source of new traffic.

If you use our datasets on your site or blog, we ask that you provide attribution via a “dofollow” link back to this page. We have provided a few examples below that you can copy and paste to your site:

Your data export is now complete. Please check your download folder.

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.

LIVESTOCK-Lean hogs sink on big supply, futures’ premium to cash prices

CHICAGO, Jan 9 (Reuters) – U.S. lean hog futures fell on Thursday on ample supplies of hogs and a weak cash market, and as traders remain uncertain about how much additional pork China would buy as part of a Phase 1 trade deal with the United States.

The actively traded Chicago Mercantile Exchange (CME) February contract guided futures lower, pressured by its premium to the CME lean hog index, which is nearly 9 cents below Thursday’s closing price.

Hog traders are looking ahead to next week’s Phase 1 trade agreement signing between the United States and China, the world’s top hog and pork market. U.S. officials say the deal would double Chinese purchases of U.S. farm goods.

U.S. pork exports to China have been record-large in recent months as the country scrambles for supplies after African swine fever killed about half of China’s hog herd.

But investors remain tentative as Chinese imports of U.S. pork have, at times, been below market expectations.

“It is disappointing for the market to weaken on a day when China confirmed next week’s trade deal signing. But the market doesn’t really know what to expect in the way of pork buying by China,” said Doug Houghton, analyst with Brock Associates.

The U.S. Department of Agriculture is due to release updated weekly export sales data on Friday after a winter storm in Washington delayed the report’s release by a day this week.

CME February hogs fell 2.000 cents to 67.025 cents per pound, a near-one-month low but still well above the latest lean hog index of 59.34 cents.

Live cattle futures firmed on seasonally tight supplies and hopes for another week of higher cash market prices, though gains were kept in check by poor beef packer margins. Feeder cattle ended mixed.

Bids and offers at U.S. Plains feedlot markets remain far apart, but traders expect cash sales this week to be at least steady to possibly higher than last week’s $124 per cwt market.

Average beef packer margins on Thursday fell to $3.15 per head, down from $6.35 on Wednesday and $28.75 a week ago, according to livestock marketing advisory service HedgersEdge.com LLC.

CME February live cattle closed 0.375 cent lower at 126.725 cents per pound, while March feeder cattle were 0.100 cent higher at 146.925 cents per pound.

Reporting by Karl Plume in Chicago; Editing by Richard Chang

Bloomberg

We’ve detected unusual activity from your computer network

To continue, please click the box below to let us know you’re not a robot.

Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.

Need Help?

For inquiries related to this message please contact our support team and provide the reference ID below.