The decision to use the USDA National Daily Direct Hog Prior Day Report for Slaughtered Swine was made based on discussions with market participants, USDA officials and industry representatives and is designed to enhance the connection between cash hog prices and futures contract prices.
The CME Lean Hog Index is a two-day weighted average of cash prices. For contracts through February 2003, these cash prices are the actual base costs at 51 to 52 percent lean of the hogs that were slaughtered that day. Beginning with the April 2003 contract, which begins trading on May 23, the cash prices used in the Lean Hog Index will be the average net prices at the average percent lean for slaughtered hogs.
Every morning, each packer reports the previous day's base cost and average net price, the number of hogs slaughtered and the average carcass weight to the USDA. The USDA then calculates a single average base cost and net price, weighted by the number of hogs slaughtered and the average carcass weight. This weighting allows prices to be represented in proportion to the number of hogs sold and will enable the Lean Hog Index to better represent production patterns and prices received by farmers.
Chicago Mercantile Exchange Inc. (www.cme.com) is the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX® around-the-clock electronic trading platform. CME offers futures contracts and options on futures primarily in four product areas: interest rates, stock indices, foreign exchange and commodities. The exchange moves about $1.6 billion per day in settlement payments and manages $27.4 billion in collateral deposits. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc.
