Hogs are generally bred twice a year in a continuous cycle designed to provide a steady flow of production. The gestation period for hogs is 3-1/2 months and the average litter size is nine pigs. The pigs are weaned at 3-4 weeks of age. The pigs are then fed to maximize weight gain. The feed consists primarily of grains such as corn, barley, milo, oats, and wheat. Protein is added from oilseed meals. The time from birth to slaughter is typically 6 months. Hogs are ready for slaughter at about 254 pounds, producing a dressed carcass weight of around 190 pounds and an average 88.6 pounds of lean meat.
The world’s largest pork producers are China with 49% of world production in 2011, the European Union with 22%, and the U.S. with 10%. The world’s largest pork exporters are the U.S. with 34% of world exports in 2011, the European Union with 30%, Canada with 18%, and Brazil with 9%.The world’s largest pork importers are Japan, which accounted for 19% of world imports in 2011, Russia (15%), Mexico (10%), South Korea (10%), and China (9%).
When dealing with pork prices, it is important to understand both the supply and demand influences. The factors among the supply side are the production cost, such as cost of feed. The factors among the demand side are personal income, price changes in alternatives meats such as beef and chicken, and population increases. Prices can be affected by disease. In 2011, South Korea increased imports after it culled 25% of its hog herd from foot-and-mouth disease.
In 1966, the Chicago Mercantile Exchange introduced the futures contract on Lean Hogs, providing a way to engage in price discovery for the lean hog marketplace. Lean Hogs futures provide a way to effectively manage the price risk that merchandisers, producers, processors and others have related to the purchase or sale of lean hogs. In addition, traders can take advantage of the arbitrage and spread opportunities with other related meats and grains.
The futures contract trades on Globex, the CME Group’s electronic exchange. The market opens at 8:30 AM CT and closes at 1:05 PM CT, Monday through Friday.
One Lean Hogs futures contract is 40,000 pounds or approximately 18 metric tons. The previous settlement price (August 15, 2012) for October 2012 Lean Hog futures was 75.600 or $30,240 per contract. The most common contract symbol is HE.
One futures contract price increment is $.00025 per pound. A one “tick” move is $10.00. The next tick after 75.600 downward is 75.575, followed by 75.550. Therefore, a price move from 75.600 to 74.600 is $400.
The performance bond or initial margin requirement to initiate one futures contract is $1,320 (as of November 11, 2015). To control that futures contract going forward the maintenance margin becomes $1,200 (as of November 11, 2015).
The Daily Price limit is $.03 per pound above or below the previous day’s settlement price. For example, the Daily Price Limit to the upside for the Thursday, August 16 trading session is 78.600. The daily limit price is $0.060 if the market once again closes at the limit.
The futures contract month listings are February (G), April (J), May, (K), June (M), July (N), August (Q), October (V), and December (Z).
The futures contract’s Last Trading Day (LTD) is the tenth business day of the contract month at 12:00 PM CT. The October 2012 Lean Hogs futures contract LTD is October 12, 2012 for example. There is no First Notice Day (FND) for Lean Hogs. Lean Hogs are cash settled at expiration.
Visit our Markets section for additional contract specifications and market information regarding the Lean Hogs futures market.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.