Posted 8/17/2018 22:28 (#6935485 - in reply to #6934380) Subject: RE: Hogs
kst1 - 8/17/2018 10:43
Kooiker - 8/16/2018 22:57 That's $5000 of "basis" per contract.
So the equivalent to -$1.00 soybeans?
Kind of, sort of, but not really.
The difference in "basis" levels between buyers on grains is for all purposes the cost of moving grain from one place to another. It takes roughly 5 truck loads to move a contract of beans vs 1 truck to move a contract of hogs. So from a transportation cost standpoint a -$5 soybean basis would be closer to the same thing. Your cost of trucking determines whether it is worth hauling your grain to a better "basis".
There is also "delivery" for beans at specified locations along the Illinois and Mississippi rivers. If your local bid was a $1 under the board and you were located close enough to the delivery points that it only cost you $.50 to truck your beans to the delivery points on the river you would take them to the river. Thus forcing the convergence of the cash price and the futures.
With hogs there is NO delivery. There is NO convergence between the futures and the cash bids. It takes 1 truck to move a contract worth of hogs. $5000 moves a load of hogs a loooooong ways down the road. It would cost somewhere around $2500 to get a load of hogs from my finishers delivered to the CME's front door. $500 moves a load of hogs from my finishers to 11 different packing plants that account for nearly 30% of the packing capacity in this country.
I could ship a load of hogs to just about any hog packing plant in the United States for under $5000. The only 2 places it would cost more than $5000 to get a load of hogs to would be the plants in California and North Carolina. I could haul a load of hogs to 90% of the packing capacity in this country for less money than what the basis was at the expiration of the August contract.
But it doesn't matter. There is no delivery for hogs and no convergence of the futures and cash bids.
Its no longer a useful tool to hedge hogs. Its a joke.
Hogs
