CME Group developed the Pork Cutout Index to provide an additional tool for managing the price risk associated with hogs and pork production.
While 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.
The CME Pork Cutout Index price gives an indication of the overall supply and demand situation of the wholesale pork market.
The CME Pork Cutout Index is a five-business day weighted average of prices as reported by the US Department of Agriculture (USDA) and published in its “National Daily Pork Report Fob Plant - Negotiated Sales – Afternoon” (LM_PK602).
The index calculation begins by multiplying the daily number of loads 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 determine the CME Pork Cutout Index value, the sum of five consecutive daily total values is divided by the sum of five consecutive daily total load counts. 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)|
The sum of the five daily values is $132,018.6852. This is then divided by the sum of the five daily loads, 1,601.85, to obtain the index price of 82.4163, which is rounded to 82.42.
|Calculated Index Price||Rounded Index Price|
|$132,018.6852 / 1,601.85 = $82.4163||$82.42|