Eur-Usd through interest rate analysis
Eur-Usd through interest rate analysis
15 April 2023
Insights into the term structure
Insights into the term structure
8 May 2023

A very interesting meat spread

What most commodities are experiencing is a special moment, with strong rises and many missed seasonality. I am not going to explain the reasons for this situation by simply talking about one of the few spreads I follow on meat.

The spread is the consequence of a ratio, the Live Cattle/Lean Hogs ratio, which I show below (weekly chart).

Live cattle-Lean hogs ratio (

Last week the ratio rose above 2.4 only to fall back below it this week. The signal is bearish and certainly interesting, you only have to see in the past how the ratio evolved once, after closing above 2.4, the following week's candle closed below that value again.

Now, I have to choose the spread to be analysed, or, to be more precise, the deliveries. The two spreads that are best suited for this are LEV23-HEV23 (October deliveries) and LEZ23-HEZ23 (December deliveries). The two legs, live cattle and lean hogs have the same Unit Move, so there is no need to use any multiplier.

Below are charts with 5-, 15- and 30-year seasonal patterns.

The counter-seasonal movement of the two spreads is evident. The very good correlation of the three seasonal patterns shows the exceptionality of the non-seasonality of the two Intermarket spreads. The strong bullish movement of the last few weeks of the live cattle has greatly affected the two spreads, as you can see below with the Seasonality stacked and the Continuous histogram of LEV23-HEV23.

LEV23-HEV23 Seasonality stacked (

LEV23-HEV23 Continuous histogram (

Even stronger this imbalance is visible in LEZ23-HEZ23.

LEZ23-HEZ23 Seasonality stacked (

LEZ23-HEZ23 Continuous histogram (

Never before has the price of LEZ23-HEZ23 reached such an extreme value. I leave my impressions to the final conclusions, now I show you the last chart, that of the term structure of the two futures.

LIve cattle and Lean hogs term structures (

The two term structures are very different, especially the October and December deliveries: in contango those of the live cattle, in backwardation those of the lean hogs. When the situation starts to normalise, the two deliveries in the lean hogs will appreciate more than those in the live cattle.

Precisely... when. These situations have the great virtue of providing excellent trading opportunities but at the same time, the defect is that it is very difficult to identify the timing of entry. The strong speculation of the live cattle can end tomorrow, in a week or in a month.

Certainly, the ratio gives us a good signal but it is not certain that a bearish phase will start next week (look what happened in February/March 2015). In these cases, you have to rely on your experience, and your knowledge of the two commodities, and if you are a beginner, much better to just open a demo trade.

What most commodities are experiencing is a special moment, with strong rises and many missed seasonality. I am not going to explain the reasons for this situation by simply talking about one of the

David Carli
David Carli
David is a financial analyst with over 29 years of experience (two years as a fund manager) in currencies and commodities. He collaborates with a major European commodity investment company and is the author of several successful books about trading and financial markets.


  1. Weijie says:

    Thank you David, I very much appreciate your work and analysis

  2. Jakubson says:

    Thank you for this really interesting inspiration, David. The current ratio between the meats futures is impressive. But how about the negative seasonality of the spread from mid June? Do you consider it as a short term oportunity till June or rather long term?
    And whats going on in the live cattle market that speculators have driven prices so high?
    Thank you for your opinion.

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