Lean Hogs Futures Price
The lean hogs futures price is different than the lean hogs price in the cash (physical)
market. Generally, the price of a commodity for future delivery is higher than the cash price due to carrying costs (insurance,
interest, and warehousing fees). This is called contango. The opposite of contango is backwardation. Backwardation is when
the price of a commodity for future delivery is lower than the cash price Backwardation is normal in a “seller’s
market.”
When you trade lean
hogs futures, your futures price depends on where you get into the market. After you post your initial margin, your profit
or loss depends on where you enter and exit the market (minus transaction costs).
For example:
The contract size for
lean hogs is 50,000 lbs. So each $.01 move equals $500. As the market moves your account value adjusts. If your account
value drops below the maintenance margin, a margin call is due. A margin call can be met by offsetting positions or adding
money to your account.
Trading futures
is like driving a car without insurance. You save the insurance premium, but if you crash you will wish that you were insured.
If you have very deep pockets or deal with the physical lean hogs product then futures may be for you. If you are a speculator
with a limited amount of risk capital then lean hogs options are a better way for you to invest in the lean hogs market.
Click here to view the current futures price of
lean hogs.
