Pork is the most consumed protein in the world, accounting for 36% of the meat consumed globally. In 2019, the US produced 129.9 million commercial hogs, or 27.7 billion pounds of pork.1
As the pork industry continues to grow to meet increasing supply and demand, how do those involved in the production, processing, and consumption of pork manage their risk?
While the Lean Hog Index from CME Group reflects the prices paid for live hogs in the US, the Pork Cutout Index reflects values further down the supply chain in the form of pork cuts.
What is a pork cutout?
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.
Hog producer agreements with packers and processors are diverse and have changed over time. Historically, these agreements were primarily based on negotiated cash hog values. However, more attention is being placed on values down the supply chain, particularly with the pork carcass cutout.
Today, some hog values remain primarily based on cash hog markets, some are based primarily on the cutout, and others are a hybrid of the two and/or other factors.
Managing price risk with Pork Cutout futures and options
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 products will allow market participants ‒ including producers, meat packers, wholesale, foodservice companies, and retailers ‒ to make future purchase and sales decisions confidently.
Trading the contracts
Pork Cutout futures and options can be traded on CME Globex or through block trades on CME Clearport. Margin offsets will be available for trading between other CME Group livestock products.
The futures are financially settled to the CME Pork Cutout Index, which is a five-day weighted average of pork carcass values. The index is quoted in US cents per pound, or dollars per hundredweight. The current index price and historical data file is available on cmegroup.com.
CME Group provides a transparent, regulated trading environment and centralized clearing through CME Clearing.
No matter your role in the pork industry, Pork Cutout futures and options can help your risk management needs.
1 Source: USDA
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