Hog Futures Building a Bottom

Hog futures have fallen approximately 30% between last November and the recent March lows near $.72 per/lb. This rapid and significant decline may be nearing an end as the commercial long hedgers come out buying with both hands because the market is approaching what they clearly feel is an important price level.

The recent sell off in the futures market and corresponding build in the long hedgers’ commercial trader position as reported in the Commodity Futures Commission’s weekly Commitment of Traders report began in earnest once the hog futures fell through $.93 per/lb which had been the low for 2014. The $.20 decline in the futures market since then has brought them out to lock in future hog supplies at the greatest pace in nearly three years.


Looking at the chart shows why it is so important to pay attention to the commercial traders…especially at their extremes. The premise we follow is that no one knows more about a market’s value than the people whose livelihoods are dictated by the proper assessment their market. Importantly, we’re not relying an any individual trader’s opinion or actions but rather the collective actions of the commercial trader group as a whole. This helps filter out regional differences as well the gap between market rhetoric and market action. Over the last five years the market has traded down towards $.65-$.75 per/lb four times. Each of these times, commercial traders bought heavily and proved to be profitable a short time later.

commercial traders in hog futures
It’s quite clear that the commercial traders have knack for buying at the bottom and selling at the top in the lean hog futures market.

We are currently facing a similar pattern. Commercial traders have purchased more than 75,000 contracts since November’s highs. Their current position is net long about 20,000 contracts. This is a little more than 20% of the total open interest in the lean hog futures. Commercial traders have fantastic knack for being the dominant player in this market at its swing highs and lows. Again, reference the chart to see their actions at the market’s peaks and valleys.

COTSignals provides nightly trading signals based on the COT reports. Free Trial

We think their is a good possibility that June lean hog futures will form a bottom worth swing trading within the next week. We’re confining this to a short term opportunity in the June contract due to the early summer weakness that is typical of the hog market. The long-term view is that the $.65-$70 level may be breached during the early summer weakness and provide a long-term buying opportunity at better prices going forward.


This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors’ Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Commodity & Derivative Advisors believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.