Pork Cutout Futures and Options
The CME Pork Cutout futures and options are designed to give the pork industry risk-management tools centered on the cutout. The contracts complement CME Lean Hog futures and options.
The following resources may be beneficial as producers look to manage their risk.
• Learn About Pork Cutout Futures and Options
• Managing Risk in Pork Production
• Livestock Mandatory Reporting Program
How the Pork Cutout is Calculated
The USDA Pork Carcass Cutout reflects the overall supply and demand situation for wholesale pork cuts. It indicates the approximate value of a hog and is calculated using the prices paid for wholesale cuts of pork.
Many hogs are bought and sold based on a formula using the cutout. The values or cuts used to calculate the pork cutout include the loin, butt, picnic, rib, ham and belly.
Learn About Pork Cutout Futures and Options
The new CME Pork Cutout futures and options are designed to give the US pork industry and export markets additional risk-management tools.
Pork Cutout contracts are a complement to Lean Hog futures and options. Lean Hog contracts are cash-settled to the Lean Hog Index, which reflects the prices paid for live hogs. The Pork Cutout contracts are cash-settled to the Pork Cutout Index, which reflects the prices paid for pork.
- Pork Cutout Futures and Options
New Pork Cutout futures and options are designed to give risk-management tools to the US pork industry and export markets.
Arrangements between pork producers and packers or processors were once based mostly on the value of live hogs. Today many of these agreements now pay greater attention on the pork cutout.
- Pork Cutout Futures and Options Fact Card
CME Pork Cutout futures and options (PRK) are specifically designed to give the pork industry tailored risk-management tools on the pork cutout.
Key benefits include:
- A tool for hog producers, packers, processors, wholesalers, importers, and exporters to specifically tailor their risk-management strategies around pork cutout values.
- Allows the customer to monitor the spread differential between Lean Hogs and the Pork Cutout.
- Available for screen trading on CME Globex and block trading via CME ClearPort.
- The CME Pork Cutout Index
CME Group developed the Pork Cutout Index to provide an additional tool for managing the price risk associated with hogs and pork production.
The Pork Cutout Index is the five-business-day, weighted average of prices reported by the USDA. A “cutout” is the approximate value of a hog calculated using the prices paid for wholesale cuts of pork.
- The Pork Cutout vs. Lean Hog Spread
The Lean Hog Index reflects the prices paid for hogs in the US.
The Pork Cutout Index reflects the prices paid for pork.
A “cutout” is the approximate value of a hog calculated using the prices paid for wholesale cuts of pork. The values, or cuts, used to calculate the pork cutout include the loin, butt, picnic, rib, ham, and belly.
- Webinar: CME Group Pork Cutout Futures and Options Panel Discussion
A CME panel of industry experts discuss macroeconomic events affecting the hog and pork industry. They explain how Pork Cutout futures and options help manage risk, as well as potential new spread and arbitrage opportunities using Lean Hogs and Pork Cutout.
Features of the Pork Cutout Contract
Producers can hedge any hogs priced off the cutout value and potentially hedge a meat margin. It provides direct hedge revenues to packers and more accurately hedge prices of individual cuts to both themselves and buyers/end users.
Managing Risk in Pork Production
Managing risk, both on the cost of production and to maximize revenue opportunities are important for any pork operation. The following courses, offered by the CME group, may be beneficial as producers look to take a more active role in managing their risk.
- Introduction to Livestock
The livestock complex consists of Lean Hogs, Feeder cattle, and Live Cattle. Livestock futures and options provide the tools the industry needs to manage risk and help put food on the table for a growing global population.
Gain an understanding of the fundamentals that affect supply and demand in the livestock markets. Find out how futures and options provide critical price discovery and risk management roles for a variety of market participants, from farmers, processors, distributors, wholesalers, retailers, traders and more. Learn about the ways these contracts can be utilized in your portfolio.
- Hedging with Livestock Futures and Options
Livestock buyers and sellers face ever-increasing levels of price risk. CME Group Livestock futures and options provide livestock buyers and sellers with valuable tools to manage price risk and get greater control over their bottom line. This course details how to use futures and options for risk management in the livestock markets, focused on enhancing the hedger’s knowledge base.
- Understanding Livestock Markets
Gain an understanding of key concepts of the livestock market. Learn about the different products, how various market participants use them, and factors that impact the markets; including the use of futures and options for risk management in the livestock markets.
- Hedging with Grain and Oilseed Futures and Options
Gain an understanding of how buyers and sellers of grains and oilseeds utilize futures and options to hedge their position to manage price risk. This course will enhance the hedger’s understanding of the different strategies available as well as how the basis affects prices.
- Lean Hogs Product Overview
Lean Hogs futures (HE) at CME Group allow you the opportunity to profit from or hedge against the price movements of this meat. Each Lean Hogs futures contract represents 40,000 pounds, with a minimum price fluctuation of $.00025 per pound, or $10 per tick. The contract trades Monday-Friday from 8:30 a.m. to 1:05 p.m. Central Time (CT).
- Pork Cutout Futures Product Overview
Pork Cutout Index reflects values further down the supply chain in the form of pork cuts. A “cutout” is the approximate value of a hog calculated using the prices paid for wholesale pork cuts.
There are six main primal cuts of pork: the loin, butt/shoulder, picnic, rib, ham, and belly. Pork Cutout futures and options provide a risk management tool enabling producers and end-users of pork to effectively hedge and tailor their risk management strategy to their risk profile.
The futures are financially settled to the CME Pork Cutout Index, which is a five-day weighted average of pork carcass values.
- Self-Study Guide to Hedging with Livestock Futures and Options
One of the main objectives of this publication was to provide a good general understanding of the futures industry and how livestock futures and option contracts could be used to protect hedgers against adverse price moves.
However, the primary goal was to highlight the overall importance of price risk management, using whatever alternatives are available to manage risk. As such, this booklet should be used by livestock hedgers as a steppingstone to continue their education and training.
- Lean Hog Futures and Options
Manage the risk inherent to the U.S. pork industry with lean hog futures and options. Engage in price discovery for individual markets and access arbitrage and spread opportunities with other commodities, all with the convenience of cash settlement.
White PapersExpand All
- Trading Opportunities in Lean Hogs
Market participants have the ability to simulate the financial results of a hog feeding operation by using hedging and trading strategies that incorporate various combinations of CME Group Agricultural futures contracts. This article also discusses the Hog Crush, mathematics in hog feeding operations, and the gross feeding margin.
- Producer Recovery Series
Hosted by the Iowa Pork Industry Center and Iowa Pork Producers Association, this four-part series focused on providing information to producers to help them find opportunities for recovery in this difficult time. During each webinar, participants had the opportunity to interact, ask questions and learn from the presenters.
- Iowa Pork Congress Seminar on Financial Tools
A panel led by Lee Schulz, Iowa State University associate professor of livestock economics, explores new marketing tools and resources available to pig farmers.
- Iowa Regional Conferences on Financial Tools
One of four presentations from the Iowa Pork Regional Conferences in February 2021. In 2020, many new economic tools became available to producers. Dr. Lee Schulz, livestock economist with Iowa State University Extension and Outreach, gives an overview of CME’s pork cutout contract, the new updates in Livestock Risk Protection insurance for swine, and Livestock Gross Margin insurance options.
Livestock Mandatory Reporting Program
USDA’s Livestock Mandatory Reporting Program (LMR) provides the U.S. pork industry market intelligence to buy and sell pork competitively. The USDA Agricultural Marketing Service created user guides to provide insight into understanding information available through market reports.
- Overview of USDA Reports for the Pork Industry
Watch this three-part webinar series, hosted by USDA Agriculture Marketing Service, about USDA’s Livestock Mandatory Reporting.
A series of speakers provides an overview of LMR live hog and wholesale pork reporting, introduces other USDA resources, and explores how this information can inform real-world marketing decisions at the farm and other points in the supply chain.
Click to View Webinar Recordings
- A User’s Guide USDA’s Pork Carcass Cutout
A User’s Guide USDA’s Pork Carcass Cutout – explains the cutout value of a pork carcass
- A User’s Guide to USDA’s LMR Hog Price Reports
A User’s Guide to USDA’s LMR Hog Price Reports – an overview of 20 daily and two weekly swine reports
- A User’s Guide to USDA’s LMR Pork Reports
A User’s Guide to USDA’s LMR Pork Reports – provides a deep dive into wholesale pork reporting through four daily and eight weekly reports
- Negotiated Hog Purchase Matrix Overview
Negotiated Hog Purchase Matrix Overview – gives insight into specifications and reported bases prices used to generate the matrix
- Swine Reporting
Swine Reporting – provides information about LMR for swine
- Wholesale Pork Reporting
Wholesale Pork Reporting – contains information about LMR Wholesale Pork Criteria
- Pork Grading Resources
Pork Grading Resources – Regulations governing federal regulations for voluntary grading of meat and meat products
- Swine Contract Library and FAQ
Swine Contract Library and FAQ – The Packers and Stockyards Act requires the U.S. Secretary of Agriculture to establish and maintain a library or catalog of the types of contracts offered by packers to swine producers for the purchase of swine (including swine that are purchased for future delivery). The Swine Contract Library is intended to aid in the price discovery process and provide equal access to market information for all market participants.