The commodity code used in commodity exchanges for the trading of lean hog futures contracts is LH. In electronic trading sessions however, the ticker code is HE.
Lean hogs have several special qualities as a commodity to be traded. First and foremost is the fact that the lean hog can be made into a huge range of different products, from foodstuffs to medical supplies. Also, recent technological and agricultural advances have allowed the lean hog to be produced all over the world, and this is reflected by the fact that over sixty percent of all meat that is consumed globally is pork based. Specialised production facilities, sometimes known as ‘hog factories’, allow hogs to be reared with great precision in regards to their weight and build. They allow a hog that is suitable for market to be reared in a relatively short period of time, while still retaining efficiency in keeping them fed, which is one of the largest outgoings of a hog producer. The fact that hogs reach maturity and market readiness quickly combined with the fact that they give birth to large numbers of young makes them a potentially lucrative investment.
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Lean hogs are traded on a number of different commodity exchanges. The Chicago Mercantile Exchange (CME) is perhaps the largest that trades in lean hog futures, but several other smaller commodity exchanges also deal in this commodity, such as the MidAmerica Commodity Exchange (MIDAM).
The main business market for lean hogs is the food industry, as hogs are most commonly used for slaughter. This is not their only use however, as the medical industry uses hogs for their insulin, which is important in treating diabetes. Heart valves from hogs can also be used as replacements in humans, and pig skin can be used as a substitute for human skin in the case of burn victims.
China is the country that both produces and consumes the most pork worldwide. This is due to a combination of the size of the population and the fact that Chinese dishes often use pork as the main ingredient. The United States is another main producer of lean hogs, and is the largest lean hog exporter in the world, with Japan receiving the largest amount of imported produce. Denmark is another prolific producer and exporter of lean hogs, while the UK, Mexico and Italy act as some of the biggest importers.
Several factors influence lean hog prices. Lean hogs and corn are very closely linked in terms of the commodity market, as corn is the primary feed for hogs. If the price of corn suddenly increases, then farmers may decide to take their hogs to market at lower overall weights to cut down on feeding costs. This has the knock-on effect of causing lean hog futures prices to decrease. Furthermore, the demand for lean hogs is very much dependent on the seasons, with there being an increase of demand in the summer months. Hog prices tend to be at the highest therefore in May and July, when the number of available market hogs is low due to increased demand. Conversely, prices are lower in October and November as corn and grain are more abundant and less expensive. Other factors can come into play however. One example of this is the Swine Flu virus, which caused a decrease in demand for pork products as consumers worried that they may be contaminated.
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