Big Day in The Lean Hogs

If you are a financial trader, you understand how big a day unemployment is.  Commodity traders beat to a different drummer.  Unemployment rarely affects them.  Each commodity has it’s own D-day.  The Hogs and Pigs Report is that day for the hog market.  It comes out after the close of pit trading, but the GLOBEX session will still be open.  It’s always on a Friday afternoon.

Before there was GLOBEX, I dabbled in the hogs($HE_F).  In 1996 I had a small outright position long.  I didn’t even know about the report, and was playing golf with a neighbor on Saturday.  He worked for the $CME and was in the marketing department, his specialty was hogs.  We were teeing off on the fifth hole and he mentioned the report came out really bearish.  I didn’t think much of it, but told him I was long.  He laughed and said, look out.  On Monday, Hogs opened up lock limit down.  A few traded and I was able to get out, but it went limit down the next day too!  I didn’t forget about Hogs and Pigs ever again.

The other thing that used to happen was on the day of the report, there were wild swings in the market as people liquidated or put positions on.  That doesn’t happen as much today, although I suspect the market will be thinly traded all day.  The electronic market has made hogs extremely tough to trade.  Yes, the HFT guys are in there.  Typically though, before electronic trading, the hog market was volatile, but you could get some volume off at a price.  HFT trading makes markets a lot more thinner as less bid/ask is at each price.  There won’t be an exception today, and there could be some crazy moves if an HFT program gets caught.

The expectation for this report is that the near term quantity of hogs is steady. But, farrowings will be down.  The farmers are reducing the size of their herds.  Expectation of higher grain and fuel prices will cause them to do that.  If the market responds correctly, the deferred months will rally and the near term months will hold steady or even break a little. But, you never know.

Demand in the hog market has been really strong over the past couple of years.  There is no reason for that to change now.  Asia is a big importer of American meat, and they have had continual problems with hoof and mouth disease in different countries.  They also have had problems with bird flu.

If the near term hog market breaks, you might want to look at buying a couple.

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