Exploit the Seasonal Tendency Between Hog and Live Cattle Futures

Trading a futures spread means investors are long one contract and short another with the frame of mind that they are looking for the difference in prices to contract or expand and don't care if the direction of the market is up or down.

An example that may speak to many stock traders will be going short the S&P 500 and at the same time going long the Nasdaq 100. A trader can benefit even if the stock market in general goes down, as long as the Nasdaq 100 sector goes down less than the S&P 500 sector.

The same can be said on the flip side. The trader can lose money even if stocks in general go up, if the S&P 500 outperforms the Nasdaq 100.

The same concept applies to physical commodities such as gold, grains, meat, oil and more.

One spread, courtesy of Moore Research Center, is going long the hog market while at the same time going short the cattle market. This is a general idea and shouldn't be taken as a specific recommendation unless consulting with a license 3 broker.

The fundamental reason for this trade idea is that hog slaughter is high during and after corn harvest, whereas cattle slaughter remains low. However, demand for hogs is high because not only do retail grocers feature pork for the holidays but the industry begins to accumulate pork in cold storage for when slaughter is low in June.

By contrast, beef demand lags during the holidays.

Here is what the daily chart of each market looks like, followed by the chart of the actual spread:

Daily Chart of Lean Hogs

Charts Courtesy of CGQ

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