Sort & Cull

From mid-April, when the April lean hog contract expires, until mid-May when the May issue is no longer available for trade, the lean hog complex is more confusing than revealing of market direction.

May lean hog contracts hold the first spot on any quote sheet right now, typically quoted as front-month futures simply because they are at the front of the line and not due to any sizeable trade volume.

The May contract is so lightly traded year after year, that most in the market just simply overlook the contract. For example, the May 2015 futures currently have an open interest of 1,613 contracts. In comparison, June, which is the most active contract, posts an open interest of 72,659 contracts.

The May 2015 lean hog contract is the least active of all contracts through April 2016. This lack of liquidity makes it hard to get in and out of May contracts and increases avoidance by traders. Traders take their business to the June and July contracts instead.

As a results, the May contract price does not accurately represent the market. May 2015 futures are currently under $80 per cwt at $79.85, while all other summer lean hog contracts are hovering near $83.50 per cwt.

However, many who see or hear the first listed contract price -- May -- may not understand the influence of low volume on the contract.

So if you don't hear the May lean hog futures contract quoted on market reports, or if you do and wonder why the price differs so much from other contract months, remember the May contract is a poor representation of the entire complex.

(CZ)

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