NPPC, Farm Bureau praise new CME pork cutout contract |

NPPC, Farm Bureau praise new CME pork cutout contract

Last week the Chicago-based CME Group announced news futures and options contracts based on the pork carcass cutout, an estimate of the value of a 53-54% lean, 205 lb. hog carcass using wholesale prices that are paid for sub-primal pork cuts.

The contract will be available Nov. 9 pending all relevant regulatory review periods, the CME Group said.

“As the market has evolved, our customers continue to look for new tools to manage the price risk associated with hog and pork production,” said Tim Andriesen, CME Group managing director of agricultural products.

“The pork cutout futures and options are complementary to our lean hog contracts and will provide clients with the ability to manage risk and discover price from the hog all the way to the meat case.”

CME explained, “Hogs are increasingly bought and sold in the physical market based on a formula which uses the cutout. The pork cutout reflects 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 new contracts reflect the price of the wholesale product after processing.”

“The National Pork Producers Council welcomes the introduction of the new pork cutout trading vehicle,” said NPPC President Howard “AV” Roth, a pork producer in Wauzeka, Wis.

“We applaud CME Group for providing another risk management option, in addition to the lean hog contract, and for enhancing market visibility, which is so important to maintaining a highly competitive and innovative pork production system in the United States.”

In an analysis, the American Farm Bureau Federation’s Market Intel service said, “With the increasing number of hog transactions utilizing the pork cutout as part of a formula transaction, these contracts have the potential to develop into an important risk management tool for industry participants.”

“The timing of this announcement coincides with a rising pork cutout value and offers an opportunity to revisit what exactly the pork cutout is and how it is calculated.”