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Prairie Swine Centre is an affiliate of the University of Saskatchewan
Prairie Swine Centre is grateful for the assistance of the George Morris Centre in developing the economics portion of Pork Insight.
Financial support for the Enterprise Model Project and Pork Insight has been provided by:
Using Futures and Option to Manage Hog Price Volatility
Posted in: Pork Insight Articles, Production by student on July 17, 2018
Author: Larry Martin, Ph.D.
Reference: Banff Pork Seminar Proceedings 2018
Summary:
When looking at USDA’s September 2017 report compared to the previous year, hogs were up 2%, 1% more breeding stock, and 3% more market hogs. Hog production has been on a constant incline since 2013/2014. There are three factors that relate to the increased demand:
- More capacity and competition for hogs
- Domestic demand for red meat is increase, with pork seeming to be gaining on beef and chicken
- Growth in export demand. Canada exports approximately 65% of its hogs most years.
Where do we think prices are going to go in 2018?
- Resistance and Support Planes – points when the market spikes up, or down, then stops.
- Key Reversals – occur very occasionally at life of contract highs and lows. Most reliable indicators that the market is going to move down
- Fibonacci Retracements – occur frequently, useful as they are easy to employ on most charting packages.
- Relative Strength Index (RSI) and Moving Average Convergence Divergences (MACD) – RSI is calculated based of the previous 14 days of prices, MACD comes from a longer series. MACD is a variable value.
- Breakouts – when fundamental change and result in a change in price it represents a breakout.
These factors are utilized when making pricing decisions. There is considerable uncertainty regarding hog prices for 2018 which is increased by the volatility of hog prices.
Using Futures and Options to Manage Hog Price Volatility