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Commodity Trading: Lean Hog Futures

Demand / Consumption Considerations

The demand for pork is traditionally very seasonal in nature. Pork demand tends to be the strongest during the summer in the United States when barbecuing is more prevalent, and Americans consume more processed meats, which typically contain a high amount of pork products. However, the United States is not the largest pork-consuming nation. Pork in the United States is gaining as producers are making leaner, less fatty hogs for slaughter. The industry has slimmed down their pigs, with today's pork containing 50% less fat than the pig of the 1950's. Around World War II, pigs averaged 2.86 inches of back fat, compared to today's leaner, slimmed down hog which contains an average of less than an inch of back fat. This trend toward leaner pork, coupled with the Pork Councils marketing, "Pork the Other White Meat" television and print commercials, has increased the American public awareness of pork. However, pork still has a stigma attached to it in North America, though this is not true for Asia and Europe.

China is not only the largest pork-producing nation it is also the largest pork-consuming nation. Part of this is simply due to the sheer population in China, but pork has been a popular part of the Chinese diet for centuries. The ancient Chinese were so loath to be separated from pork, that the departed was sometimes accompanied to the grave with their herd of hogs. In 1997 China ranked as the largest pork-producing nation, producing more than the total of the next nine largest producers (including the United States), in aggregate. Despite China's large prowess in pork production, in most years China is a net importer of pork, though only a marginal importer of U.S pork products.

The United States is the largest pork exporter in the world, followed by Denmark. The United States exports more pork to Japan than any other nation, as Japan also has a strong appetite for pork. Canada, Mexico, Russia, Hong Kong, Korea, Italy, China, the Philippines, and Britain are important markets for U.S. pork exports. In recent months, the economic instability in Asia and Russia has wreaked havoc on pork exports, but U.S. government loans and aide packages of pork to these regions could have a major effect on the demand for pork in 2000. The advent of the European Union in 1999 may pose a major hurdle for U.S. pork exports since the European Commission has a long history of stringent rules and regulation regarding agricultural imports. Such rules would affect genetically altered items as well as meat products, which have been produced with the aide of hormones. Though Europe is not a major U.S. pork consumer, this could become a major issue in 2000.

Though export demand for U.S. pork is probably the most volatile demand component effecting the price of pork and hogs, consumer tastes and competition from competing meat products has more influence on the price of hogs. Generations of fear of trichinosis from under cooked pork, has had American over cooking pork, reducing its taste and appeal. However, recent marketing campaigns from the pork industry have reversed the tide and are showing an increase in America's appetite for pork. However, pork faces strict competition from beef and poultry products for America's appetite.

Record poultry production in recent years has lowered the wholesale cost of poultry, thus making poultry more attractive. The glut of poultry hitting the market has also come at a time when hog production is at record numbers, so pork is gaining little market share in Americans meat consumption as it faces stiff competition from inexpensive poultry, and beef. Pork still enjoys an increasing demand during the summer in America, with demand for pork increasing from Memorial Day and turning back down by Labor Day.

Though the majority of the demand components for pork are long-term macro economic factors, the seasonal summer increase in the consumption of pork has a strong tendency to support prices.

SPONSORED BY:

Commodity Trader's Almanac 2008
Scott W. Barrie
Best Price $26.37
or Buy New $26.37

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SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

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