In response to requests from market participants, CME Group has developed a Pork Cutout Index to use as an additional method for the valuation of hogs.
A Pork Cutout is a calculation representing the approximate value of a total unit (usually a carcass) based on the prices received for its respective parts. The prices for these parts are multiplied by their respective yield to the whole and the products are summed into the final cutout. The overall price received for products is reflected in a “cutout” price, an average of prices for all cuts. The cutout price gives an indication of the overall supply and demand situation of the wholesale pork cuts market.
The CME Pork Cutout Index is a five business day weighted average of prices for the carcass value of hogs. This data is collected by the U.S. Department of Agriculture (USDA) in its National Daily Pork Report Fob Plant - Negotiated Sales – Afternoon (LM_PK602).
To calculate the Index, the daily number of loads is multiplied by the daily carcass price to determine the daily total value. The same process is then used with data for five consecutive business days.
To get the CME Pork Cutout Index value, add five consecutive daily total values then divide by the sum of the five days’ combined total loads. The result is a five business day weighted average of pork carcass values quoted in cents per pound (same as dollars per hundredweight).
|Date||Loads||Carcass Value||Daily Value (Loads x Carcass Value)|
|July 21, 2015||371.51||85.07||= 31604.3557|
|July 20, 2015||256.46||82.97||= 21278.4862|
|July 17, 2015||215.89||82.42||= 17793.6538|
|July 16, 2015||270.37||82.65||= 22346.0805|
|July 15, 2015||421.92||82.55||= 34829.4960|
|Sum||= 1536.15||= 127852.0722|
The sum of the five daily values is 127852.0722. This is then divided by the sum of the five daily loads, 1536.15, to obtain the Index price of 83.2289 which is rounded to 83.23.
|Calculated Index Price||Rounded Index Price|
|127852.0722 / 1536.15 = 83.2289||= 83.23|