Would You Like Some Volatility With That Pulled Pork by Attain Capital

The ‘complacency everywhere’ meme has kept going as stock index markets continue to crawl higher, while bonds, energies, and other markets across the world just aren’t moving… (see here and here.) But there are a few places seeing volatility – you just have to know where to look. And where else would you look besides the notoriously volatile Hog market (haven’t you ever heard someone say pork bellies when you mention futures markets…) Well, the infamous Pork Belly contract is dead, but Hog volatility lives on in the Pig Virus that’s been sending Lean Hog Futures to all time highs.

As of March, the lean hog market had already experienced two limit up moves in the market, matching the total number of limit moves across 2009 & 2012. The USDA now estimates that the virus has infected 4,700 farms, 30 states, and killed more than 7 million piglets. In response, the USDA will spend $26.2 Million on a vaccine that will hopefully prevent the disease from spreading. That seems a bit of too little/too late with prices up so much this year, but better late than never, I guess:

Volatility
(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

And despite news of this virus hitting 14 months ago, the volatility has continued especially in the last three months, with 5 more limit moves (4 up, 1 down), bringing the 2014 total to 7; putting the Hog market at the most limit moves experienced in the last 6 years.

Volatility

(Disclaimer: Past performance is not necessarily indicative of future results)

The best part about this volatility in the Hog market is that it has been directional volatility – meaning the expansion has been accompanied by a big up trend and that the large number of limit moves have been in the same direction. This is the type of outlier trade trend following models survive all of those flat and down months for, but unfortunately for the bulk of investors in trend following/global macro type models – they won’t see any returns from this move. You see, Lean Hog futures open interest of just 78,638 contracts (compared to 280,000 in crude oil futures  and 2,594,505 in 10 yr note futures) is generally considered too small for $1 Billion+ managers to access the space in any meaningful way.  That’s why we prefer smaller managers with greater commodity exposure, so they can access such moves.

“The Managed Futures Blog is a compilation of thoughts, research, attempts at humor, and more from the team at Attain Capital Management (“Attain”). Attain pairs high net worth individuals, RIA’s, and institutional investors with alternative investments in commodities, managed futures, and global macro strategies through privately offered funds and managed accounts. Click here to sign up for their insight and analysis.”