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