Lean Hog/Corn Spread
On June 3rd, The IMC blog initiated a hypothetical short position in the August-September hog/corn spread at +$14,312.50 (premium hogs). Initially, the exit strategy is to liquidate the spread on a close above +$16,100 (premium hogs).
At the end of June, the spread cracked price support at the March 23rd low of +$9,635. It made a small bounce, but petered out before getting back above the March low. Today the August-September hog/corn spread hit a new contract low of +$7,792.50.
The July 7th bounce high of +$9,377.50 and the March 23rd low of +$9,635 create a near-term resistance barrier. Therefore, we can use a breakout above this area as an exit signal to cover the short position. This eliminates the initial risk on the trade and locks in a decent profit.
Incidentally, the December hog/corn spread crashed to a new contract low of +$2k (premium hogs). A close below the ‘even money’ mark will start whetting our appetite for the long side of the spread.
History shows that the hog/corn spread has presented some great buying opportunities after a trade below ‘even money’. If we get there, you can bet we will have something to say on the matter.
On the short August-September hog/corn spread entered at +$14,312.50 (premium hogs), exit on a two-consecutive day close above +$9,635.