Seasonal Hog Trade Plays into Much Bigger Picture

Hogs typically gain strength domestically with the summer’s grilling season and peak near Independence Day. However, this year is anything but, typical. Trade wars, African swine flu and, grain production now uncertain, it looks like two out of three of these issues could work in our favor. Additionally, the negative trade war news may already be baked in. Therefore, we’re hoping this seasonal hog trading strategy can produce more than its tested average.

The swine flu situation in China is considered to be under-reported with regards to its spread and the depths of the recent culling. China is the top pork consuming country and possesses a suspect agricultural oversight and enforcement board. This is a bad combination for containing a viral outbreak. Therefore, I believe that Chinese news will be worse before it gets better.

Finally, the hog market rallied more than 30% in response to the initial news. However, that was in early March. Now, the August lean hog contract is trading roughly 10% above the March breakout level. Fundamental demand should boost hog prices higher. Coupling the expected export increases with our own seasonal grilling demand should place added demand on our domestic supply. Perhaps, more than we usually see.

This information applies equally to the exchange-traded fund, “HOGS.”

Depending on our entry, we expect to hold the trade for approximately three weeks.

We’ll likely risk somewhere between $1,000 and $1,250 per contract.

Lean hog margin is currently $2,420 initial margin and $2,200 maintenance margin.

seasonal hog strategy performance

Out of sample hypothetical performance for 15 years of the seasonal hog strategy, we’ll be employing.

seasonal hog strategy equity curve

The hypothetical equity curve is plotted in white while hog prices for the measured periods are plotted in yellow.

We’ll send the buy signal via our Seasonal COT Signals email and follow-up daily with the protective stop and exit day once our time is up.

I’ll be delivering a bullpen session on seasonality at the TradersExpo in Chicago on July 23rd, at 1:45 CST. Free Online Registration

Best, Andy Waldock.

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