CME lean hog options will be a tool the insurer, American AgriBusiness Insurance Company, will use to offset the risk of underwriting the policies. The pilot program will be available initially to pork producers in all 99 Iowa counties, with start-up expected in mid-spring.
"The Livestock Risk Protection program is a laudable example of an innovative government and private-sector partnership. It provides small-to-medium sized pork producers the price insurance they need to protect them from being buffeted by the kind of volatility that hog prices have seen in recent years," said James McNultly, CME's President and CEO. "Chicago Mercantile Exchange welcomes the opportunity to support the program by providing the risk management tool that the insurer will use to lay off the risk of the policies it underwrites."
Each CME lean hog option contract has a CME lean hog futures contract as its underlying instrument, representing 40,000 pounds of lean value hog carcass. The contracts have traded on CME since November 1995 when they replaced CME's live hog contract, and are used by producers and processors to manage price risk in the pork industry. Average daily trading volume for lean hog futures and options in October surpassed 8,000 futures contracts and 1,000 options.
Chicago Mercantile Exchange Inc. (www.cme.com) is an international marketplace that brings together buyers and sellers on its trading floors and GLOBEX®2 around-the-clock electronic trading system. CME offers futures contracts and options on futures primarily in four product areas: interest rates, stock indexes, foreign currencies and agricultural commodities. The exchange moves about $1.5 billion per day in settlement payments and manages $30.1 billion in collateral deposits.
