Sadly, November’s results were negative for us. The result can be contributed largely to our lean hog strategy. The contracts typically trade between $2 and -$2 on the close of November. At month end, the settlement price was $6.4 which resulted in the drawdown.
With our lean hog strategy, we try to seek the deviations because statistics tells us that most deviations after a certain period of time trend toward the median price. There are two causes of deviations that we assess. The first is due to fundamental factors (i.e. Supply & Demand, shortage ect.) and the second is due to abnormal technical factors. Both factors need to be analyzed in order to determine the movement of the market. In our opinion, the deviation that took place in the lean hog market in November was due to the latter. Specifically, it was caused by the technical buying of contracts using strategies like bounce and trend line set-ups without the support of the fundamental factors. This reaction had a positive effect on the future market, especially towards the end of the month, pushing the December lean hog contract well above the cash price.
Finally the market, and as always the cash market, won the battle. Today, the December contract trades much closer to the cash price, and we were able to cover our strategy, at a normal price, recovering the loss we had in November.
One important thing for you to note is that trade was on the edge of our monthly stop, as you remember we have a monthly stop protection of 6% drawdown. The stop never took place because we were down just 4-5% on the last day of November, and in the close of the hogs the fly moved from $5-to $6,4 in a few seconds, so we lost another 2% during the pit close.
Currently, we are focusing on live cattle spreads and starting to build the same strategies in the grain market, for the next year. We are preparing also a few protection strategies in case “El Niño” affect the grain market negatively.
Additionally, we are adding to our Eurodollar positions. We believe that if and when the Fed raises the rates, it will benefit the “blue” part of the forward curve. This curve is very flat compared with the “Red”, “Green” or even the “Yellow” part.
It was a difficult year with less opportunities than in the past but as I always say, trading is a long-term run, like a marathon, and one has to know how to manage his energy (money) from the beginning until the end. If not, he can‘t finish the race.
If you have any questions please do not hesitate to contact us at your convenience.
— Gregory Placsintar
— Miguel Sanz Castello
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.