Lean Hogs Dec '20 (HEZ20)
|Tick Size||0.00025 per pound ($10.00 per contract)|
|Daily Limit||0.045 per pound ($1,800 per contract) Expanded Limit 4.5 cents|
|Contract Size||40,000 pounds|
|Trading Months||Feb, Apr, May, Jun, Jul, Aug, Oct, Dec (G, J, K, M, N, Q, V, Z)|
|Trading Hours||8:30a.m. - 1:05p.m. (Settles 1:00p.m.) CST|
|Value of One Futures Unit||$400|
|Value of One Options Unit||$400|
|Last Trading Day||The tenth business day of the contract month|
Hogs are generally bred twice a year in a continuous cycle designed to provide a steady flow of production. The gestation period for hogs is 3-1/2 months, and the average litter size is nine pigs. The pigs are weaned at 3-4 weeks of age. The pigs are then fed to maximize weight gain. The feed consists primarily of grains such as corn, barley, milo, oats, and wheat. Protein is added from oilseed meals. Hogs typically gain 3.1 pounds per pound of feed. The time from birth to slaughter is typically six months. Hogs are ready for slaughter at about 254 pounds, producing a dressed carcass weight of around 190 pounds and an average 88.6 pounds of lean meat. The lean meat consists of 21% ham, 20% loin, 14% belly, 3% spareribs, 7% Boston butt roast and blade steaks, and 10% picnic, with the remaining 25% going into jowl, lean trim, fat, miscellaneous cuts, and trimmings. Futures on lean hogs are traded at the CME Group. The futures contract is settled in cash based on the CME Lean Hog Index price, meaning that no physical delivery of hogs occurs. The CME Lean Hog Index is based on the 2-day average net price of slaughtered hogs at the average lean percentage level.
Prices - CME lean hog futures prices (Barchart.com electronic symbol HE) posted the low for 2019 in February at 52.250 cents per pound. Chinese pork supplies ramped up in early 2019, which curbed Chinese demand for new U.S. pork supplies. However, Chinese hog farmers were then forced to cull pig herds aggressively as they tried to contain the African swine fever. As a result, hog prices raced higher into Q2-2019 and posted a 5-1/4 year high in May at 93.025 cents per pound. Hog prices rallied after China's Ministry of Finance said in March that China expected to buy as much a record 300,000 MT of U.S. pork in 2019 as part of its commitment to bolster purchases of U.S. farm products amid trade negotiations. China's hog herd was decimated by African swine fever as China reported its 2019 pork production dropped -21.3% y/y because pig farmers had culled more than 30% of their herds. Hog prices fell back as U.S. hog output exploded in anticipation of increased pork demand from China. The U.S. Q2-2019 Quarterly Hogs & Pigs report showed the total U.S. pig herd on June 1, 2019, rose +3.6% yr/yr to 75.520 million hogs, the highest since 1943. Hog prices stabilized in October and pushed higher into year-end after the U.S. and China in December 2019 reached a phase-one trade deal. In that deal, China agreed to step up purchases of U.S. agricultural commodities, including pork. U.S. 2019 pork exports rose +7.8% y/y to a record 6.321 billion lbs. Hog futures prices ended 2019 up +17.1% yr/yr at 71.425 cents per pound.
Supply - The number of hogs on world farms as of January 1, 2020, fell by -11.7% to 677.595 million head. The number of hogs in the U.S. as of January 1, 2020, rose by +3.0% to 77.338 million head. The countries with the largest number of hogs as of January 1, 2020, were China with 49.4% of the world's hogs, the European Union with 21.91%, the U.S. with 11.4%, and Brazil with 5.6%.
Demand - The federally-inspected hog slaughter in the U.S. in 2019 rose by +4.5% yr/yr to 129.211 million head, a new record high.
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