Hogs spreads

Discussion in 'Commodity Futures' started by kuicimaru, Jan 20, 2010.

  1. kuicimaru


    Does anyone know why hogs spreads are moving counter-seasonal?
    As far as I understand, Feb and Apr contracts should be priced lower than the summers ones. And now we can see the winter contracts override summer ones. This is not normal.

    Any ideas?
  2. 1) What are you looking at?
    2) ---Feb 70.45
    ------Apr 73.37
    -----June 80.35
    -----July 78.65
    -----Aug 78.07
    The Summer months are priced at a premium to the Winter months, as expected. :confused:
  3. kuicimaru


    All right, I mean not the price itself, but the direction of the spread. Its movement. As far as I understand, the summer contracts should receive bigger premium starting December and during the spring when the slaughter is decreasing and it's clear how many hogs available on the market. Consumption is also growing during spring to summer. Then the summer contracts tend to outperform winter ones.

    I've read this on mrci.com and there's written it's a seasonal tendency which recurs every year, quite logical. And now i see it's moving in the opposite direction.

    Maybe there are too many hogs on the market? May it be the reason?
  4. I have traded a lot of spreads in a lot of different markets and I make my living trading spreads but I have never been able to really understand livestock spreads and why they move (cattle seems easier than hogs for some reason in my experience).

    Good luck to you
  5. Once an edge gets posted on a website, expect it to quickly disappear.
  6. kuicimaru


    Youngtrader, what spreads, do you think, are easier to understand for a beginner?

    SomeYoungGuy, I should agree with you, however I think that spread looks to be a seasonal one which worked well every year for about 20 years due to fundamental reasons. So if it moves counter-seasonal, it means there are some fundamental reasons besides its publication.. So I just want to investigate them and know their strength.
  7. I would disagree...it all depends on your style, and how you like to trade. I find livestock spreads to be the easiest to trade, from two points of view.

    A.) The Scalper: if you want good trendy movement intra-day, go to hog spreads. If you want slower but more steady order flow, go to live cattle spreads.

    B.) The Fundamentalist: If you like trading fundamentals more than fund flow or technicals, the livestock markets are for you. Still a big fundamentally based market. This moreso applies to the directional flat price trade, but has a bearing on the spread markets as well. You really have to understand the industry though, and which fundamentals actually matter.
  8. foo


    It is honestly like anything else...you have to spend alot of time and work in the area if you want to succeed. I am generally in this spread as it has an excellent history but, that is not enough. There are signs why this is wrong so far this year. It is a bit hard to explain but, if you were in the trenchs enough it would be clear why they are going counter-seasonal this year.

    If you would like more details I will share them.
  9. This may be a dumb question, but do any Ag spread pros out there use the % of full carry as a key decision driver for spread trade entry/exit? For example, the following information:

    Corn Spread Settlement + Cost of Carry @ 2.5% Interest

    CH10 - CK10 Spread Settled at 11.00 , full carry at $0.1154 , percent of carry at 95.33%
    CH10 - CN10 Spread Settled at 20.25 , full carry at $0.2308 , percent of carry at 87.75%
    CH10 - CU10 Spread Settled at 27.75 , full carry at $0.3462 , percent of carry at 80.17%
    CH10 - CZ10 Spread Settled at 34.75 , full carry at $0.5192 , percent of carry at 66.93%

    CN10 - CZ10 Spread Settled at 14.50 , full carry at $0.2906 , percent of carry at 49.90%
    CN10 - CN11 Spread Settled at 37.25 , full carry at $0.6974 , percent of carry at 53.41%
  10. kuicimaru


    Certainly. Please share your ideas. Do you think this move will not reverse?
    #10     Jan 21, 2010