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FUTURES FILE: Pork price collapse brings frustrations

The month of May can be a frustrating month for hog traders. The basic seasonal pattern for hog prices is higher in the summer months (June-July) and lower in the fall/winter (October-December). As temperatures heat up in the summer, hogs spend more energy keeping cool and eating less. Cold winter temperatures have less of an effect as most finishing operations are confined, allowing the pigs to pack on the pounds with ease.

These summertime premiums and winter discounts are built into the futures price structure at any given point in the year, no matter when you look, which means there is no easy button to say sell in July and buy in December. Theoretically, you could have the December lean hog futures reach their contract lows at the same time the July lean hog futures reach their contract highs at any point in the year. That scenario is unlikely but not anymore so then trying to guess when those lows and highs will happen.

On April 23, the July 2024 lean hog future contract topped at $110.450/cwt and then proceeded to drop through the entire month of May into the first week of June, hitting $91.80/cwt this week for a low – a 17% drop right before the seasonally high price time of the year.

On April 26, the July 2024 lean hog futures held a $22/cwt premium to the October lean hog futures. That spread narrowed up to reach a low of $13.22/cwt this last week.

For those new to trading hogs, it might look like a good time to buy the July lean hog futures. For those not new to the hog trade, it might look like a reasonably good spot for a bull spread, i.e. buying the July lean hog futures and selling the October contract. For the experienced hog trader, they have probably given up trading hogs and moved on to something else – from a smaller house in a less attractive location.

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