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Advisor

Lean Hog futures vs. cash

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Don't know a lot about the business anymore.

 

I've been short LH for a while for purely technical reasons with modest success.

 

But it appears to me that it is darn hard to know what the "cash" price is in anticipation of convergence with the (cash settled) futures.

 

Apparently if you take the national average base price and add about $3 to it (I'm speculating that is about what most producers get after premiums) that's about right.

 

Any thoughts?

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5 Replies
Veteran Contributor

Re: Lean Hog futures vs. cash

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What you are looking for is the "lean hog index."  It is a value tabulated daily using actual price and volume.  It has a 2 day lag.  On cmegroup.com, it is currently 77.72 as of 1-6-15.

 

Hog futures expire 10 business days into the month so Feb hogs quit trading around Feb 15.  You can hold your position even after Feb expires and wait for 2 days until the lean hog index reveals what the true settlement price is.

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Advisor

Re: Lean Hog futures vs. cash

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Yeah that VWAP settlement deal is kinda funky.

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Veteran Contributor

Re: Lean Hog futures vs. cash

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I reversed and went a little long yesterday.  Thought mabye cash and product would stabilize-improve from these levels.  Maybe it was just brain-freezeSmiley Happy

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Advisor

Re: Lean Hog futures vs. cash

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Well, seasonal sort of supports that.

 

By the way, in recent years has the basis as measured by index vs. lead futures been positive any, or much?

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Veteran Contributor

Re: Lean Hog futures vs. cash

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June usually has the most positive front-month basis.  Summer and winter(to a point) seem to be most positive while spring and fall are not so much.  Still follows when hog numbers used to be more seasonal?

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