What Market Fundamentals
Can Affect The Live Cattle Futures?
In free market economies, supply and demand is the
primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. When you are
considering a trade in the lean hogs market some of the basic fundamentals that you should consider are:1. Feed Feed costs represent approximately 70% of the production
costs of pigs. Corn is the most commonly used livestock feed in the United States. If the price of corn rises substantially, farmers will tend to take their hogs to market at lower weights
(younger) to avoid the high feed costs. That typically causes lean hog futures prices to drop as more supply comes on line.
2. Weather When the
weather turns very hot, the hogs turn inactive and have a tendency not to be in prime breeding condition. A normal gestation
period of four months leads to the seasonally low number of farrowings (pig births) in December, January, and February. Cold
weather and an ample supply of freshly harvested corn create excellent breeding conditions from November through January.
As a result of good breeding conditions, the largest number of pig farrowings is between March and May.
3. USDA Reports You can estimate the future amount of hog production by monitoring the USDA Hogs and Pigs Report.
If the amount of newborn pigs are lower than previous quarters, it is likely the hog production will be lower six months later
when they are ready for market.
4. China The emergence of China onto the world economic stage
has many implications for U.S. hog producers. As China makes its transition from a developing economy to a developed one,
the world will notice that 20% of its population is becoming wealthier, demanding more goods, and eating more high quality
food. Pork, being the primary meat in Chinese diets, will face a demand surge.
These are just some of the basic fundamentals to keep in mind when you are considering a trade in the
lean hogs market. Therefore, before opening up a commodity account to trade lean hogs you should consult with a licensed commodity
broker that follows the lean hogs market to discuss investment strategies.
Click here to contact a commodities broker with experience in the lean hogs market.