Pigs and pork

MANHATTAN, Kan. — The CME Group’s plan to launch pork cutout futures and options Nov. 9 is good news for pork buyers as well as producers, a Kansas State University agricultural economist said.

“There indeed is significant interest from U.S. and Canadian hog producers in having additional risk management alternatives available,” Glynn Tonsor, livestock market specialist with K-State Research and Extension, said in a news release.

Tonsor was responding to a Sept. 29 CME Group announcement that it plans to launch Pork Cutout futures and options on Nov. 9.

A “cutout” is the approximate value of a hog calculated using the prices paid for wholesale cuts of pork. The new contracts will reflect the price of the wholesale product after processing.

“Over time, more and more marketing contracts include a pork cutout component,” Tonsor said.

“Combined, CME’s introduction of a Pork Cutout contract will enable interested hog producers, as well as pork buyers and sellers, to possibly adjust their risk management strategies. While much attention has come from the possible benefits from a hog producer’s perspective, the observed wholesale pork volatility during the pandemic likely corresponds with strong interest from pork buyers seeking ways to mitigate pork purchase price risks they face.”

Even with the introduction of the new resource, context is important, Tonsor said.

“The role of specific futures and options contracts varies over time,” he said.