Source: VantagePoint Intermarket Analysis Software

Lean hog futures prices collapsed Monday in the wake of weekend media reports about a swine flu “epidemic” that apparently originated in Mexico but has spread to other countries including the United States. While it is too early to dismiss the potential significance of a threatening pandemic, wise traders should keep a few things in mind:

  • Whenever an “epidemic” appears to threaten human health, markets tend to panic and over-react as traders cover long positions and new selling emerges. Reports that China and Russia banned pork imports from Mexico helped to fuel this panic.
  • When the mass media moves on to some new hot topic, the market settles down and may allow traders to profit from the price distortion.
  • Remember “mad cow” disease, avian flu, SARS, various e coli and salmonella scares . . . The odds of contacting them are very rare for those following sanitary cleaning and cooking practices.
  • Swine flu is a new virus that has nothing to do with consuming pork but is spread by humans.
  • But that may not keep consumers from turning away from pork, which could have a significant impact on the price of lean hog futures – and perhaps cattle, too. Mexico is a major importer of U.S. pork, and it is not a market U.S. hog producers would like to see diminish for any reason.
  • The voice of reason should remember that old ad slogan, “Where’s the beef?” when it comes to associating hogs and pork with swine flu.