The CME Pork Cutout Index

The CME Pork Cutout Index

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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.

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Key Points

  • Participants will have the ability to monitor and compare the value of the Pork Cutout Index to the current Lean Hog Index on a daily basis.
  • CME Group is only publishing a Pork Cutout Index at this time.
  • The publication of a Pork Cutout Index will be distributed through the CME Group website and quote vendors beginning August 24, 2015.

Calculating the CME Pork Cutout Index

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).

Example calculation of the Index for the five business days ending on Tuesday, July 21:

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

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