Commodity Trader's Almanac 2O11

102

LEAN HOGS FATTEN UP

BEFORE THANKSGIVING

Demand for pork increases, as consumers switch

meat products when beef prices are too high. In

addition, Canadian imports have started to fall off,

and now we begin a cycle of demand outpacing

inventories.

Seasonally, we have a low posted in the hog

market in November, so traders should look to buy

lean hogs on or about November 2 and exit on or

about November 21. In the last 41 years, this trade

has provided 27 years of gains, for a success rate

of 65.9%. The cumulative profit is $14,050. Again,

using some simple timing techniques should have

had you entering this trade a bit later in November

2009 and exiting after Thanksgiving at much more

favorable prices.

The chart below is of Hormel Foods (HRL),

overlaid on the lean hogs front-month futures

contract to illustrate the correlation in the price

action. This company is in the business of pro -

essing pork and producing hogs, both here in the

United States and abroad.

As you can see, Hormel has a strong cor -

relation to the price of hog futures. The price

move of HRL and lean hog futures in 2009–2010

is rather similar to the historical seasonal price

pattern of lean hogs, shown in the bottom line

on the chart. Another company traders can follow

based on hog price moves is Smithfield Foods

(SFD), a pork product producer. These two stocks

frequently move in tandem with hogs. See pages

133–138 for additional cor ...