USDA reported only carcass weight prices as part of the mandatory price reporting system beginning in mid-2001. 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. This page contains free live streaming charts of the Lean Hogs Futures. As you can see in the spread chart above, live cattle are trading at a 32-cent premium to lean hogs. Lean Hogs Futures Overview Detailed financial information on Lean Hogs Futures. The animal is thus worth $97.86/cwt. As such, they may contain out-of-date references and broken links. With the current spread at 32-cents, we’re closer to the bottom of this range than the top. of meat. The discrepancy is due to rounding. This began to change a few years back for a very practical reason: Cattle fed in northern-state feedyards tended to carry a great deal of mud to the slaughter house in the winter. Live cattle and lean hogs fit the bill, with each contract being for 40,000 lb. Vegetarians need not apply. CME changed its Live Hog contract to a carcass-weight Lean Hog contract (the name was chosen to reflect the improvement of hogs and to keep the LH abbreviation) beginning with the February 1997 contract. All Rights Reserved. Nonetheless, I’m expecting this spread to widen. cash settlement to a "Lean Hog Index", meaning that the futures price Live prices increase relative to carcass prices when supplies are tight for the same reason plus, in the minds of some observers, another one: Live prices are not included in the base prices for hogs purchased through marketing contracts. There were To see our latest newsletters and current information, visit our website at Note: Let me be explicitly clear that trading spreads is no less risky than trading outright directional plays. Assume that a 1400-lb live market steer or heifer is worth $1370 to a packer (how that value is determined is a topic for another issue!). The seasonal variation in yields is clearly discernible in the chart. Sizing a spread trade in commodities is easy when the two commodity products trade in contracts of equal size. The relationship between carcass and live prices will always be tied to carcass yield: $155.68 x 62.9 per cent = $97.92/cwt live. Live prices fall relative to carcass prices when hog supplies are plentiful, implying that live-weight purchases are “at the margin”. Some observers suspect that packers buy more hogs on a live weight basis when prices are high to keep these high-priced pigs out of the average carcass price and thus out of the prices of contract-purchased pigs. Trade the spread between our existing Lean Hog futures contract and Pork Cutout futures contract. But the hog relationship is not quite so simple. T…, While China rebuilds its pork production capacity, the US pork sector must take steps to lessen the impact of lower trade flows in the future…, While China rebuilds its pork production capacity, the US pork sector must take steps to lessen the impact of lower trade flows in the future. Exchange (CME) switches completely to the Lean Hog contract. Differences include, Description: Lean value of slaughtered hogs that meet the following. If the animal yields a carcass weighing 880 lbs, its carcass-weight value is $1370/8.80 cwt. But first, let’s take a look at the two commodity markets separately. The Lean Hog Index is a two-day weighted average of lean hog values collected of meat. This allows us to trade the spread 1:1, with every 1-cent move in the spread equating to a $400 gain/loss. Why wouldn’t the contract be called “Carcass Hogs” or the price be a “lean weight” price? Carcass merit pricing starts with a base price determined by supply and demand conditions and then adds premiums/deducts discounts depending on the leanness/fatness of the carcass and whether it falls within a desired weight range. This allows us to trade the spread 1:1, with every 1-cent move in the spread equating to a $400 gain/loss. About | Advertising | Privacy | Disclosure | Sitemap, The best trading strategies for trading commodities. You've reached the Virginia Cooperative Extension Newsletter Archive. USDA reported only carcass weight prices as part of the mandatory price reporting system beginning in mid-2001. Why do we have both? Again, I’m expecting the spread to widen and suggest trying to jump in and out of a quick trade. will converge to the index; prices represent a lean value versus a live value; contract consists of 40,000 pounds of carcass instead of live weight; contracts expire the 10th business day of month; options expire same day as futures contract; no price limit the last two days of trading. http://sites.ext.vt.edu/newsletter-archive/. First for cattle. Note: Let me be explicitly clear that trading spreads is no less risky than trading outright directional plays. Give me a call…, To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997, Fibonacci retracement, lean hog futures, live cattle futures, Options spread, Spread trade.

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