Thursday, November 10, 2011

The Derivative of Hogs: the Real McRib Arbitrage

Willy Staley of theawl wrote an article this week title "A Conspiracy of Hogs: The McRib as Arbitrage." He points out the correlation between McDonald's introduction of the McRib and pork prices. According to the Pork Cycle, supply and price of livestock is cyclical as changes in demand cannot easily be met due to gestation and breeding.

Key: 1. November 2005 Farewell Tour; 2. November 2006 Farewell Tour II; 3. Late October 2007 Farewell Tour III; 4. October 2008 Reintroduction; 5. November 2010 Reintroduction.
What Staley fails to consider is that McDonalds has not only introduced the McRib when pork is cheap, but also when beef is relatively expensive. See the graph below where the spread between the spot price of live cattle (beef) and lean hogs (pork) is shown:
Live cattle shown in orange, lean hogs shown in white, and the spread is yellow. The same five events are market as previous key. 

During the five periods mentioned by Staley, a particularly wide spread exists between the two meats. There is a wide spread right now, as the McRib is being served. Thats six for six!

Ostensibly the McRib cannibalizes demand for other purchases. Customers who buy the McRib are often switching from BigMacs. The two are comparable products. Introducing the McRib while pork is cheap and beef is expensive maximizes profit, improving margins.

Watch the spread (not seasonality, or the price of pork!) to see when the McRib is coming back.

I'd rather have a burrito.


  1. Thank you for advice it is really interesting. Could you please inform me during which time this trend are live? (Month, year?)

  2. This is an informative blog by which I have got that info which I really wanted to get.
    Wordpress blog

  3. The blog is good enough I again n again read this.

  4. Enthralling stuff I haven't been finished particular data in a lasting time.
    Blogger resource

  5. An unbelievable blog. This blog will indisputably be definitely recommended to my friends as well.
    trading broker

  6. Your blog is too much amazing. I have found with ease what I was looking. Moreover, the content quality is awesome. Thanks for the nudge! KETQUAMOINHAT

  7. My friend uses for long term loans regularly and recommended me to go there as well

  8. This is very interesting, You are a very skilled blogger. I have joined your feed and look forward to seeking more of your wonderful post. Also, I have shared your site in my social networks!

  9. i am for the first time here. I found this board and I in finding It truly helpful & it helped me out a lot. I hope to present something back and help others such as you helped me. 파워사다리 사이트

  10. I haven’t any word to appreciate this post.....Really i am impressed from this post....the person who create this post it was a great human..thanks for shared this with us. продавай скины кс го за реальные деньги

  11. William Hill Betting Locations | Mapyro
    Find William Hill sports betting locations in poormansguidetocasinogambling Maryland, West Virginia, Indiana, Pennsylvania, South Dakota, West Virginia and more. 메이피로출장마사지