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Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.

The Ultimate Guide to

Trading Lean Hog Futures Online

Lean hog is a term used within pork markets for trading hogs or swine as a commodity. For clarity, when discussing hogs, this also encompasses swine and pigs.

Within the hog industry, feeder pigs are fed to a target weight in finishing facilities, at which point they are ready for slaughter. The Gross Feeding Margin (GFM) refers to the difference between the costs involved in making the hog ready for the pork market, and their final market value. This is a vital calculation for hog producers, as the risks associated with costs involved in rearing the hogs and bringing them to market, such as feed costs and sale costs, can be offset using futures.

Traders can easily access the lean hog market using futures which are traded on the Chicago Mercantile Exchange. Often, settlements in the lean hog index, which are the result of the cash-weighted average of a two day period in the cash market, are settled based on a call for a cash settlement policy.

History of the Hog

Hog is a generic term for all swine, including pigs, and refers to both the male and female of the species. They are used as a food type, known as pork. Hogs are descendants of wild boar and records would suggest that they have been used for pork since at least 5000 BC. The first incidents of domestication are believed to have occurred in China around this period. Originally, they were used exclusively as a food source, but as time progressed, humans started using their skin to make shoes and clothes and their bones were turned into weapons or cutting instruments.

Modern Day Statistics for Hogs

The Top 10 Pork Producing Countries in the World 2016 (Pork.org)

Country – Thousand Metric Tons

1. China – 53,500

2. European Union – 23,230

3. United States – 11,334

4. Brazil – 3,609

5. Russia – 2,675

6. Vietnam – 2,475

7. Canada – 1,925

8. Philippines – 1,400

9. Mexico – 1,385

10. Japan – 1,280

Pork is one of the most consumed meat types, and its demand has always been higher than other meats as it is relatively inexpensive. Every year there are 100 million hogs sent to the slaughterhouse as pig farming becomes more intensive.

What Influences the Lean Hogs Market?

There are numerous factors that can affect the price of lean hog markets. Just some of the main factors are mentioned below:

  • Feed: Feed costs take up around 70% of the production costs of pigs. As corn and soybeans are commonly used for feeding the hogs, if that rises or falls dramatically this will have a significant effect on the price of lean hogs.

  • Weather: When it is hot, pigs tend to not move much meaning they are not in prime breeding condition.

  • China: With China emerging onto the economic stage with regards pig production, this can have an effect on other pork producing countries. Moving from being a developing country to a developed country, China’s population becomes wealthier which increases the demand for pork.

How are Lean Hogs Traded?

Lean Hog futures are traded on the Chicago Mercantile Exchange on the livestock futures complex. The exchange also provides opportunities for futures trading in other agricultural commodities, such as live cattle and feeder cattle.

They trade under the ticker HE on the CME Globex electronic exchange, with each contract controlling about 40,000 pounds or 18 metric tons. Lean hog futures contract months are February, April, June, July, August, October and December.

Lean Hogs - IG - CFD

Lean Hogs – IG – CFD

However, traders wishing to speculate on the price of lean hogs futures can opt for contracts for difference (CFDs) based on the price of futures as a convenient way to access this market. For example, IG offer a CFD based on the CME Lean Hogs OCT-17 Standard futures contract, which is traded with a minimum contract size of 1 and minimum estimated value of $4 per pip. The minimum margin required is 2.5% and a minimum stop distance of 30 pips. Therefore, in order to have an open position in lean hogs, the minimum margin requirement is (6023*1*4*2.5% =$602.3). Note – live price taken from IG 30th August 2017.

Conclusion

In conclusion, it is likely that there will be always strong supply and demand in the pork industry due to the popularity of pork. The main reasons for trading the lean hogs markets are for producers and other industry participants to hedge against the risks associated with the cost of feed and market value of the swine. However, speculators can also trade futures, CFDs and other financial instruments to take advantage of price movements in the lean hogs markets.

Traders should always choose a regulated broker, such as IG, as they are subject to strict requirements that ensure the fair treatment of their customers is their top priority.

Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.