Lean Hog Futures

Lean Hogs Markets

Lean Hogs are a futures contract traded on the Chicago Mercantile Exchange (CME) that can be used to speculate or hedge the price of pork. Lean hogs refer to pigs that have reached 250 pounds, which is the minimum weight to slaughter. This can happen as quickly as 6-months. Lean Hog futures contracts are for 40,000 pounds and are cash settle. The lean hog price is calculated by using the CME Cash Hog Price Index, which is the two-day weighted average of cash markets.

Lean Hog Futures – Contract Specs

Lean Hogs Futures History

Lean Hog contracts were first introduced in 1966 on the floor of the Chicago Mercantile Exchange (CME), and are still traded there to this day.

Lean Hogs Futures Facts

The U.S. is the world’s largest pork exporter, with most hog production coming out of the Midwest from states like Illinois, Iowa, Minnesota, and North Dakota. As mentioned earlier, it normally takes around six months to raise a pig to 250 pounds at which point it becomes a hog and is ready for slaughter. On average, a 250-pound hog will yield roughly 85-90 pounds of lean hog meat. Ham and loin account for about 40% of that total yield while belly, butt, spareribs, and picnic account for smaller percentages. The rest of the pig goes towards miscellaneous uses. Pork belly, which is codeword for bacon, used to have its own contract that was also traded on the CME. However, the CME group discontinued the contract because of its lack of liquidity.

Trading Lean Hogs Futures

• Like many commodities, CME lean hog futures have a certain seasonality to them. We generally see hog futures prices at their highest during the summer months, when grilling season is at its peak
• The lean hog index is heavily influenced by the corn market because corn is the main food used to feed pigs. If the price of corn is tracking higher, hogs will often get slaughtered at a lower weight due to the price of feed, thus driving hog prices higher.
• Lean hog prices usually sink to a general low in the fall months, especially October and Novemeber when corn is being harvested.
• Rising incomes across the globe have increased the demand for lean hogs, especially in China, who is now the leading pork consumer in the world.
• Lean Hog traders keep a close eye on reports like the quarterly “Hogs and Pigs Report” and the monthly” Hog Slaughter Report” from the USDA to get a better idea on which way the market is moving.
• Lean hog contracts are cash settled with the last trade date being the 2nd to last business day of month prior to the contract month