Lean hog is a technical designation used in the commodities trading of pork products, most frequently through the mercantile exchange in Chicago. The term refers to the majority of edible meat harvested from a hog carcass. Pork bellies, which are used primarily to produce bacon, are traded and priced as a separate commodity. Lean hog futures contracts are traded widely, with delivery timing linked to the cycle of agricultural production.
Commodities markets are relatively heavily regulated, and most commodities are governed by standard trading limits. Lean hog trading is constrained by limits in most marketplaces. A limit serves to restrict the volatility of pricing for a given commodity by placing a boundary on the degree to which the price of that commodity can fluctuate during any single day of trading. This is intended to make commodities markets somewhat more predictable for both buyers and sellers so that they can more effectively manage the supply and demand of commodities. The limit on lean hog traded in Chicago is 3 cents per pound per day, although greater fluctuation is allowed toward the very end of a contract cycle.
Futures contracts are generally written according to standard rules. Contracts for the trading of lean hog futures are no exception to this rule. This policy, like the use of a limit on trading price fluctuations, is intended to make the trading process more efficient. A standard contract for lean hog futures represents 40,000 pounds of meat.
All agricultural commodities are tied to the seasonal cycles of production. Hogs require an average of six months before they are fully mature and can be sold for consumption. This fact combines with weather and other seasonal factors in such a way that more hogs come onto the market during the summer months. Standard futures contracts are available every month through the late spring and summer but only every other month throughout the remainder of the year.
The price of lean hog contracts varies quite widely. It is influenced by global demand for pork products, including a rapidly-rising demand from the emerging economies of Asia. Price is also influenced by the price of feed for hogs, primarily corn. Higher prices for corn will produce higher hog prices over the long term, as it becomes more expensive to raise and fatten animals, but lower prices in the short term, as farmers opt to avoid paying more for feed and sell hogs earlier than they would otherwise. This latter trend decreases prices by increasing supply.
