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 correlated tra

des and page

179 for more hog seasonalities.

Chart courtesy TradeNavigator.com

LEAN HOGS (LH) BARS AND HORMEL FOODS (HRL) CLOSES

(WEEKLY DATA JANUARY 2009–MAY 2010)

ENTRY EXIT PROFIT/

YEAR DATE CLOSE DATE CLOSE LOSS

1969 11/4 25.550 11/21 27.050 $600

1970 11/4 17.000 11/23 17.250 100

1971 11/2 22.175 11/19 23.425 500

1972 11/2 29.350 11/22 29.200

–60

1973 11/2 46.075 11/21 48.750 1,070

1974 11/4 43.650 11/22 44.075 170

1975 11/4 50.450 11/21 53.225 1,110

1976 11/3 29.925 11/22 33.300 1,350

1977 11/2 36.875 11/21 38.350 590

1978 11/2 49.400 11/22 53.700 1,720

1979 11/2 40.800 11/21 45.250 1,780

1980 11/5 55.575 11/24 55.450

–50

1981 11/3 49.000 11/20 46.300 –1,080

1982 11/2 53.825 11/19 56.750 1,170

1983 11/2 46.700 11/21 46.175

–210

1984 11/2 51.000 11/21 53.475 990

1985 11/4 46.125 11/21 46.300 70

1986 11/4 48.625 11/21 51.425 1,120

1987 11/3 41.275 11/20 43.750 990

1988 11/2 45.825 11/21 42.625

–1,280

1989 11/2 46.625 11/21 50.625 1,600

1990 11/2 50.050 11/21 51.725 670

1991 11/4 42.175 11/21 42.750 230

1992 11/3 42.925 11/20 44.225 520

1993 11/2 49.875 11/19 47.425

–980

1994 11/2 36.800 11/21 34.950 –740

1995 11/2 46.200 11/21 46.950 300

1996 11/4 75.950 11/21 76.275 130

1997 11/4 62.825 11/21 61.775

–420

1998 11/3 42.625 11/20 36.650 –2,390

1999 11/2 49.700 11/19 54.925 2,090

2000 11/2 53.700 11/21 56.850 1,260

2001 11/2 54.700 11/21 53.600

–440

2002 11/4 50.450 11/21 52.750 920

2003 11/4 58.550 11/21 54.075

–1,790

2004 11/2 69.725 11/19 73.400 1,470

2005 11/2 65.925 11/21 64.625

–520

2006 11/2 67.800 11/21 66.550 –500

2007 11/2 59.875 11/21 62.750 1,150

2008 11/4 61.850 11/21 64.100 900

2009 11/3 64.525 11/20 64.375

–60

41-Year Gain $14,050

NOVEMBER LONG LEAN HOGS (FEBRUARY)

TRADING DAY: 2—HOLD: 13 DAYS

Lean Hogs Seasonal Pattern since 1968

c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 102

MONDAY

7

TUESDAY

8

WEDNESDAY

9

THURSDAY

10

FRIDAY

11

SATURDAY

12

SUNDAY

13

OE:

KC(Z)

The principles of successful stock speculation are based on the supposition that people

will continue in the future to make the mistakes that they have made in the past.

— Thomas F. Woodlock, (Wall Street Journal editor and columnist, quoted in

Reminiscences of a Stock Operator, 1866–1945)

I know nothing grander, better exercise…more positive proof of the past,

the triumphant result of faith in humankind, than a well-contested national election.

— Walt Whitman (American poet, 1819–1892)

People who can take a risk, who believe in themselves enough to walk away

[from a company] are generally people who bring about change.

— Cynthia Danaher (Exiting GM of Hewlett-Packard’s Medical Products Group, Newsweek)

Excellent firms don’t believe in excellence— only in constant improvement and constant change.

— Tom Peters (In Search of Excellence)

I’m not better than the next trader, just quicker at admitting my mistakes and moving on to the next opportunity.

— George Soros (Financier, philanthropist, political activist, author, and philosopher, b. 1930)

End Short Gold(Z) (Oct. 4)

End Long Soybeans(F) (Oct. 24)

Veteransʼ Day

NOVEMBER

c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 103