Frequently Asked Questions:
- What is Pork Cutout?
- When was Pork Cutout launched?
- How is Pork Cutout different from the existing Lean Hog contract?
- Why did CME Group launch this contract?
- What are the contract specs?
- How is the final settlement price of the contract calculated?
- How does CME Group settle the futures on a daily basis?
- What are the price limits?
- What are the position limits?
- Is the intercommodity spread between CME Group Lean Hogs and Pork Cutout listed on Globex?
1. What is Pork Cutout?
Pork “cutout” is the approximate value of a hog calculated using the prices paid for wholesale cuts of pork. There are six main primal cuts of pork: the loin, butt/shoulder, picnic, rib, ham, and belly.
2. When was Pork Cutout launched?
Pork Cutout futures and options were launched November 9, 2020.
3. How is Pork Cutout different from the existing Lean Hog contract?
While the CME Group Lean Hog product suite reflects the prices paid for hogs in the United States, the Pork Cutout product suite reflects the prices paid for US pork.
5. What are the contract specs?
Pork Cutout specs mirror Lean Hogs specs aligning the contracts.
4. Why did CME Group launch this contract?
Since 2015, an increasing number of hog purchase agreements between producers and processors have come to include pork cutout values. Prior to that, most transactions only referenced the negotiated cash hog price as the base price of a formula agreement. Customer feedback indicated that Pork Cutout futures and options would provide an additional risk management tool for the ever-evolving hog and pork industry.
6. How is the final settlement price of the contract calculated?
All open contracts at the termination of trading shall be financially-settled using the CME Pork Cutout Index® for the five-day period ending on the day on which trading terminates. The termination of trading is on the tenth business day of the contract month at 12:00 p.m. CT.
7. How does CME Group settle the futures on a daily basis?
CME Group provides daily settlement prices for listed Pork Cutout futures months with open interest. The settlements are determined using CME Livestock futures settlement procedures.
8. What are the price limits?
CME Group Pork Cutout contracts are subject to variable prices limits and follow the same annual price limit methodology as CME Group Lean Hog products. There shall be no price limits on the expiring contract month during the last five trading days.
9. What are the position limits?
Pork Cutout futures will have spot month position limits of 350 contracts net long or short as of the close of trading on the fifth business day of the contract month. Single month position limits will be 1,000 contracts net long or short and a reportable level of 25 contracts.
10. Is the intercommodity spread between CME Group Lean Hogs and Pork Cutout listed on Globex?
Yes, the spread is listed on Globex for trading. Symbol PRK/HE
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
