Trade Idea: Lean Hogs


This week we are keeping our eyes on Lean Hogs, the front month chart looks to be in a consolidation after a big rally up to 128.775. Fundamentally lean hogs are looking a little bit better after last Fridays USDA report, the WASDE (World Agricultural Supply and Demand Estimates) which is a supply and demand report. They stated that pork production is expected to increase as producers respond to the Porcine Epidemic Diarrhea virus, by increasing farrowings and feeding hogs to heavier weights.

Technically we feel that lean hogs are way to over valued, and front month hogs are breaking a major level of support. So we like to bear spread lean hogs.

Trade Idea: Lean Hogs Short December/February There are a lot of different month combinations that you can use to bear spread hogs, but December/February has the strongest seasonal pattern. The 5 year and 15 year price averages are highly correlated and the pattern is very strong. The last time this spread traded anywhere close to where we are currently trading was in the 80’s. Taking past performance into account on risk, we would love to sell this spread around $5.00, but the problem with that is we may never see that print. Our initial position will be taken at $4.00 and added to at $5.00. We are risking this up to $5.20. We are currently in this position short at $4.00, with are target at $2.00.


Win%—–95% over the last 20 years

Worst Down—–(-$640.74)

Best Up——$1186.02


2 thoughts on “Trade Idea: Lean Hogs

  1. I was watching =/HEZ4-/HEG5 today and was logged in to see over 20 contracts whiz through at today’s new contract high of $5.00 just before 3:30 PM ET. I’d be sweating drenched at being minus $400/contract and “doubling down” in the red with a chart that to me looks like it could spike on a short squeeze because this rise has been so gradual with hardly any selloffs. I was tempted to join in and pick one up at $5.00 but I remembered the old adage about never picking a top. It’s one thing to buy at support but to sell something at new high when rising on so much strength is another story. Crude breaking high on big inventory miss is another factor that kept me sidelined from trying to pick a top this hogs spread when front month is still making new highs because farms use a lot of oil. The way I see it, you’ve 1) picked a top in advance, 2) and you’ve also added to a losing position.

    Right now if I’m gonna be bear spreading I’m losing interest in picking a top in HE for this spread because the price action is telling me that the new porcine virus might not be a no-nevermind because HE keeps breaking higher after LE has settled down to what’s probably a solid top.. I’m following three different CL bear spreads and am looking to sell one or more of them on an up-spike in front-month CL: N4-U4, N4-Q4, and/or Q4-U4. If I trade CL with bear spreads, I’d base my entries and exits not so much on the price of the spread, but more based on the price of the underlying, or front-month crude which is almost certainly going to take a good pause at the 105 level. Our quirky broker is nice enough to show the working trades it has in FUT calendar spreads, and there were three different orders for one contract each that got filled at $5.00 on your hog spread today. Good Luck to you who are now short at $5.00 if you’re reading my scrivel. Please let us know how you manage this trade, for better or worse.

    1. As far as the hog spread, my original position was at $4.00 and I added at $5.10. On 5/28 we had a pull back to around $4.25, right when we had that pull back I covered my position for a profit (I covered at $4.40). Sometimes in spread trading you have to allow for some drawdown, and I know it might be hard to add to a spread that is going against you, but in most cases it helps to dollar cost average into a trade, as long as the seasonal pattern, fundamentals, and technicals are strong and still make sense to trade.

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