Lean Hogs Trading: What Do Traders See in Them [and How to Get Started]

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Lean hogs are the most commonly traded commodity product for gaining exposure to whole hog prices.

Companies and individuals involved in the production, distribution, and sale of pork products use lean hog futures and options as tools for hedging risk. As a result, these financial products occupy a critical role in global food commodity markets.

Traders can speculate on lean hog prices in several ways, including:

  • Lean hogs futures or options on futures
  • Contracts for Difference (CFDs) on lean hogs
  • Exchange-Traded Funds

If you’re eager to get started, jump to our list of brokers who offer lean hogs trading instruments.

Reasons You Might Trade Lean Hogs

Trading lean hogs can be a good addition to a trader’s portfolio for the following reasons:

Bet on Demand from China

Growth in Chinese demand for pork might be the best reason to trade lean hogs.

The global supply of pork has tightened in recent years as Chinese imports have risen sharply. If these patterns continue, there could be supply shortages and higher lean hog prices.

Chinese Cooking with Pork
Pork is a key ingredient in chinese cooking, Pushing Up Demand – Image via Pixabay

Of course, the biggest determinant of demand in China will be the economy. However, pork has long been the favored animal protein in the country, and demand elasticity might be less than for other types of meat.

Inflation Hedge

Trading lean hogs is a way to hedge against the loss of purchasing power from inflation. Livestock is almost certain to become more expensive if the world economy starts to overheat.

Low interest rates from the Federal Reserve and other central banks have produced speculative bubbles in assets ranging from equities to high-yield debt to cryptocurrencies.

Yet food remains the most basic and fundamental necessity. Food commodity prices could see the largest increases if the economy experiences higher inflation. Lean hog prices could benefit from these conditions.

Diversify Your Portfolio

Trading lean hogs might be a way to diversify a portion of a portfolio out of stocks and bonds and into commodities.

How to Trade Lean Hogs

Investors have several ways to get investment exposure to lean hogs:

Method of InvestingComplexity Rating (1 = easy, 5 = hard)Expiration Dates?Mgmt. Costs?Leverage?Regulated Exchange?
Lean Hog Futures5YNYY
Lean Hog Options5YNYY
Lean Hog ETFs (ETNs)2NYNY
Lean Hog CFDs3NNYY

Lean Hogs Futures

The Chicago Mercantile Exchange (CME) offers a futures contract that settles into 40,000 pounds (18 metric tons) of lean hogs.

The contract trades globally on the CME Globex electronic trading platform and has a variety of expiration months and cycles.

Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, lean hog contracts are financially settled.

Trading in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

Lean Hogs Options on Futures

The CME offers an options contract on lean hog futures.

Options are also a derivative instrument that employs leverage to trade in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

Options buyers pay a price known as a premium for each contract. An options bet succeeds only if the price of lean hogs futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in lean hog futures to profit from their trades.

Lean Hogs ETFs

These financial instruments trade as shares on exchanges in the same way that stocks do.

There is one ETF that trades in London and invests in lean hogs:

  • ETFS Lean Hogs –

There are three US ETFs for trading generally in livestock:

iPath Bloomberg Livestock Total ReturnE-TRACS UBS Bloomberg Livestock Commodity Total ReturniPath Pure Beta Livestock ETN

Shares of Lean Hogs Companies

There is no adequate way to get pure-play exposure to lean hog prices through the equity market. Most ranches that raise lean hogs are privately owned or part of big public companies that engage in other activities. Traders seeking exposure are better off looking to ETFs that invest in futures than to equities.

CFDs

A popular way to trade lean hogs is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of lean hogs. The value of a CFD is the difference between the price of lean hogs at the time of purchase and its current price.

Many regulated brokers worldwide offer CFDs on lean hogs. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to lean hog prices without having to purchase shares, ETFs, futures, or options.

Where to Trade Lean Hogs

If you are looking to start trading lean hogs and other agricultural commodities, here’s a list of regulated brokers available in to consider.

Top Brokers Available in

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73.90%-89.00% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Factors to Consider Before Trading Lean Hogs

Lean hog prices are extremely volatile. Unlike crude oil or gold, the primary traders of the commodity are not speculators, but industry players hedging their risk exposures.

Changes in weather, corn prices, and demand from China, among other things, often create huge price swings. For this reason, traders may want to avoid taking large speculative positions in the commodity.

However, traders might want to consider buying a diversified basket of commodities that includes lean hogs.

A basket of commodities that includes lean hogs, other livestock and poultry, other agricultural commodities, metals, and energy can provide a portfolio with protection against inflation. It could also insulate against large movements in individual commodities.

Traders should also consider specifically trading lean hogs because of the enormous importance of the Chinese market. Trading lean hogs provides a way to participate in future economic growth in this huge economy.

Potential Risks of Trading Lean Hogs

Traders should consider these three risks of trading lean hogs:

  1. An economic slowdown in China could seriously limit demand for pork.
  2. Better hog breeding techniques and animal husbandry practices could create oversupplies of lean hogs.
  3. Health and environmental concerns could lead to decreases in pork consumption. In particular, hog producers have come under attack from environmental groups for waste and animal cruelty. Changes in perceptions about the industry could dampen demand.

Further Reading

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