Pigs might fly: A look at the market for lean hogs

Sometimes its worth looking at markets off the beaten track of most commodity analysts, ones not beholden to movements in the US dollar or other broad macro economic movements. This week I’m looking at the market for lean hogs in the US, a market where cycles (a feature of all markets) is particularly pronounced.

Chinese pig herd shrank in September by the largest amount since early 2016. Beijing has shuttered thousands of small hold farms across the nation in a drive to impose tough new pollution standards by December, boosting domestic hog prices. In the past high pig prices in China has spurred strong imports of hogs from the US to meet expected demand.

Meanwhile, in the US higher feed prices (corn and soybean meal prices jumped last week ) will raise costs for US farmers increasing the cost of producing each hog and potentially restricting supply. The hog/corn ratio is currently 17.7 which points to stable pig output over the next 12-18 months, however an increase in the price of corn will, all other things being equal lead to a reduction in pig output going forward.

Hogs prices typically show strong seasonality*, with prices peaking in April / May and then bottoming out at the end of August. The opening up of two new major processing plants in September has put a floor under the market as they fight for feedstock and should result in the strong seasonal trend continuing through the fourth quarter.

Over the longer term, hog prices typically take about 3-4 years to move from peak to trough and a further 3-4 years to go full cycle. Hog prices just completed a full cycle and hit the trough exactly 12 months ago in mid-October 2016. All of which points to the start of a major turning point for lean hog futures.

* Lean hog prices show strong seasonality due to biological factors and the impact that the weather has on both supply and consumer demand. Since most pork in the US is sold fresh you cannot carry product from one time period to the next which tends to accentuate the seasonal tendencies.

Related article: Livestock prices: The top 10 most important drivers

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What I learned from writing and publishing two books

The short answer is a lot…but that isnt very interesting, nor very helpful. To say the best way to learn about a subject is to write a book about it is undoubtedly true. It forces you to really think about an idea and then ground it down to make it as succinct and interesting as possible. My greatest learning experience has been writing my second book, closely followed by my first book.

I really would encourage anyone who has a passion for a subject, or that knows or has experienced something different or can bring a different perspective to write and publish their work. For me I’m sure there will be a third. But before I get to that, I thought I’d put together a brief, practical guide to anyone who fancies picking up the baton and doing the same. Hope it helps 🙂

On writing…

Writing a book isn’t for everybody though. It is painful at times. In fact it can be painful for lots of the time. But like most things worth doing very rewarding at the same time. Rewarding, but always uncomfortable, and thats probably how any creative process should be.  The hardest thing is to keep the motivation to plow on when it might be many months before it sees the light of day. The best way to counter that obstacle is to make a public commitment to write and publish a book, and bring other people (friends, family, colleagues but especially potential readers) along for the journey. Once you get even a small snippet of encouragement that you are onto something it then becomes difficult to let go.

The best way to get into the groove of writing is just to write. Don’t worry about your spelling, grammar or whether the paragraphs all flow well. The best way to get stuff out is to just splurge it out. To that end though there are ways in which you can deal with the consequences of that splurge. I used a writing tool called Scrivener that allows you to easily see the structure of the book and individual chapters in much greater clarity. You can then switch the structure around as you see fit without having to scroll down through Word and having to cut and paste big chunks of text.

On research…

I hear about some authors that say they spend most of their time researching and then the final part of the process of completing a book is the writing part. I don’t like to do things that way. Sure, you need to do some research at the start to get moving, but I find that putting some words down helps to crystallize the ideas in my head, which then gives me a clear idea of what I need to look for next.

The other things I use that make my research a lot easier are Evernote and Pocket. Evernote is great for recording ideas and bringing together research. I’ve also used it occasionally for drafting whole sections when I haven’t had access to a laptop. Pocket, an app that saves and bookmarks all the useful articles and stories I find is one thing I would not be without.

On publishing…

When I published my first book I got the ebook out first, followed by the audio version a couple months later and it took me a whole year to get the paperback version out! This was partly my own perception that, well surely very few people want to read paperback versions anymore and partly my lack of knowledge about how easily it would be to do. For my latest book all 3 versions will be out much quicker.

I used a service called Pronoun to publish my ebooks. Upload your Word file and they format your book for Kindle and other ereaders taking out hours of hassle. Add some details about your book, decide on the price and then hit publish. And thats it. A few days later your book will be in Amazon, followed a few days later by iBooks, Google and a  number of other online book stores. For the paperback version I used Createspace (again an Amazon company). They provides a free (or close to fee free) way for authors to get their book in print. Forget about needing to stuff your attic with a load of your books on the off-chance that someone will buy it, Createspace prints a copy of your book on demand when someone purchases it.  Finally for the audio version I used ACX. Its a service (again owned by Amazon) that brings together authors with voiceover experts. For authors all you need to do is outline your book, what you will be doing to promote it, think through the type of voice that suits your book and then hold an audition. At the time of writing Audible pay the author/voiceover $25 whenever someones first download is your book – these payments add up much faster than you think.

Sell totally through Amazon or sell to multiple booksellers? There are arguments to both approaches. If you sell solely to Amazon you will not be able to sell anywhere else. The advantage is that, especially if you are a new author is that instead of sales spread across several stores they will be concentrated on Amazon. This has an advantage in terms of potential readers finding your book. The downside to publishing through Amazon solely is that you will be enrolled in their Amazon Unlimited service. Instead of being paid when a reader decides to read your book, you will be paid on the % of the book they read. This might be a gamble you are willing to take if you are an established author, but for a relative newbie and especially for a non-fiction author where readers dont necessarily want to read the whole book or even that much of it you will be limiting the amount of revenue you can generate. For both of my books I have taken the approach that its best to cast the net as wide as possible.

Self publishing your own book means its all down to you. And that means you need to set yourself deadlines.  Treat it in the same way as if you were working for a company. If you don’t, it will slide and years from now you will have a finished manuscript. But, one that you not want to let go. You will keep smoothing out little edges. I published my first book knowing that it wasn’t perfect, but if I’d waited for perfection if would have never been published.

On promoting it…

If you are writing and publishing your own book then getting people to actually know that its out there is down to just one person…you. And to be honest from what I understand talking to other authors, even if you were to be published by a publishing company unless you are a famous, established author that is no different.

Try and keep your followers (that minimum viable audience) interested and engaged in your journey as you go along. Don’t think that you need to have millions of followers on Twitter or Facebook to then be able to sell your book. Having a small group of people in the know, especially if some of them can get the word out to a much wider group of people is a big help.

On whats next…

A work of fiction might be on the cards next – with a take on economics/commodity markets naturally. Or it might be something entirely different. Dare I say it, I’m open to suggestions.

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Drowning in oil? In defence of The Economist’s oil price articles

“Many of the great economic forecasting errors of the past half century came from excessive extrapolation of performance of the recent past and treating a country’s growth rate as a permanent characteristic rather than a transient condition.” – Lant Pritchett and Lawrence Summers

Most forecasters predict a future quite like the recent past. One reason is that things generally continue as they have been, and so major changes just don’t occur very often. Another reason is that most people don’t do “zero-based” forecasting, but start with the current observation or normal range and then add or subtract a bit as they think is appropriate. A bias commonly known as anchoring or recency.

A presentation at this weeks Platts conference in Singapore highlighted how The Economist magazine has apparently fallen fowl of this bias a number of times over the past two decades when it comes to the price of oil. First in 1999, again in 2003 and then in 2016 the magazine has (at least based on the cover) called time on the oil market. Each time the oil market has risen sharply in the year after the articles were published.

However, the title cover or the title of the article never tell the whole story. Delve a little deeper into each article and they were quite prescient. The extract below is from my new book, Crude Forecasts: Predictions, Pundits and Profits in the Commodity Casino.

In what is now one of the magazine’s most infamous articles, The Economist published a report in March 2009 highlighting how the price of oil had fallen to just over $10 per barrel to its lowest level in real terms since 1973. The article postulated whether given the trend in prices since the late 1900s that prices could, and should, fall even further:

Yet here is a thought: $10 might actually be too optimistic. We may be heading for $5… Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a “normal” market price might now be in the $5–10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range.

The magazine goes on to list several trends, extrapolations from recent events, that justify prices falling even further. The article cites low production costs in the Middle East and elsewhere as evidence that even if the price of oil rebounded, those low cost producers would quickly raise output in response. It also cites emerging worries over global warming for why oil demand could be lower in the future as countries looked to meet binding emissions targets. Finally, the article also argues that low oil prices would not provide much of a boost to consumption; partly due to new energy technologies and partly due to environmental taxes disguising low oil prices from consumers. No mention was made of China, India or the rise of other emerging economies that were to power the rise in oil consumption over the next 10–15 years.

To give them some credit however, and in a prescient move, The Economist highlighted a risk that was to become important four years later:

In the medium term, however, the Gulf states will find that their revenues recover and even increase with cheaper oil. So once they have made the transition to higher production, a $5 world should not hold any terrors for them. But it may hold more terrors for the rest of the world—for, just as in 1973, it will find that it is increasingly dependent on a few unstable and unreliable Gulf countries, notably Saudi Arabia, Iran and Iraq, for its energy. Cheap oil may not look quite so wonderful, after all.

In a similar vein the 2003 edition ‘The End of the Oil Age’ highlighted the views of former Saudi oil minister Sheikh Yamani who speculated that advances in technology might allow other countries to diversify their energy supplies away from oil, the article concluding that, “One day, these new energy technologies will toss the OPEC cartel in the dustbin of history. It cannot happen soon enough.” Fast forward to 2016, and The Economist notes, “Forecasting the price of oil is a mugs game”. But what they also highlight is the risk that low oil prices means the “world could yet be laid low by an oil monster on the prowl.”

The financial media, then in 1999, as now in 2017 has to serve up content that engages the reader, viewer or listener with a compelling narrative that takes seconds to digest. Watch out for recency bias in the media, but don’t be too harsh on those that are careful to caveat their analysis with emerging risks. As ever, the devil is in the detail. If only you care to look.

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