Crude oil has been stealing most of the headlines in the commodity world as of late, as the fossil fuel’s drop over the last year has been a major story. While crude stays in the spotlight, lean hog futures have been cratering, as they are the worst performing commodity of 2015 by a sizable margin.
Hog futures are down more than 20% this year and more than 30% over the last three months, with the drop stemming from a labor dispute. On the U.S. West Coast, a disagreement between shipping companies and union dockworkers has stranded tens of thousands of shipping containers. The major loss comes from the export value that the U.S. misses out on, as just over 20% of pork production is exported. With shipping containers hanging in limbo, hog futures have been feeling the pinch [see also The Ten Commandments of Commodity Investing].
The two sides met on Friday but were unable to reach an agreement. With the U.S. unable to export part of its pork production, many importers have begun to look elsewhere for their supply, putting even more pressure on the price of lean hog. Worse yet, ports around the country have been seeing high traffic for fossil fuels and would be unable to handle the pork shipment even if it were to be diverted to a different location. Below is a chart of lean hog futures over the last six months:
Investors should note that along with the labor issues, hog futures tend to bottom out in the early months of each year; seasonality is likely another cause for the price collapse. Yet another thing to remember is that in July of last year, pork prices hovered at all-time highs, so the fallout can also be somewhat attributed to that market correcting. Now, prices are the lowest they have been in more than five years.
The Bottom Line
Traders will want to keep a close eye on the labor dispute situation in the U.S., as it is by far the biggest driver of prices in the near-term. Any positive news or some form of agreement will likely send these futures soaring, but any negative news will likely only further their collapse. Though hog futures are not typically among the most popular commodities, they will no doubt be among the most watched in the coming weeks and months.
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Disclosure: No positions at time of writing.
