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Commodity & Ingredient Hedging, LLCwww.cihedging.com

312-596-7755

Commodity & Ingredient Hedging, LLCwww.cihedging.com

312-596-7755

2015 PORK Management Conference

Price Discovery &Mandatory Price Reporting

Copyright 2009 Commodity & Ingredient Hedging, LLC 2

Hog Sales Negotiation Examples


Negotiation Examples

1.) Seller has a spot load of hogs to sell next Thursday.

Buyer and seller agree to $78.

No reference made to futures or USDA report

Which category should it be reported in?



2.)Seller has a spot load of hogs to sell next Thursday and notices that high end of WCB yesterday was $78

Seller asks for yesterdays WCB high.

Buyer and seller agree to that, which is a known $78 at the time




3.) Seller has a spot load of hogs to sell next Thursday and asks for $78.

Buyer asks how seller got to that figure and seller mentions it was the high end of yesterdays WCB. Buyer justifies the price since it was printed in a USDA report.

Buyer and seller agree on $78




4.) Buyer and seller agree to price a load of hogs for delivery next Thursday at that days PM WCB high.

Price is not known




5.) Seller notices that July hog futures settled at $78 and mentions to buyer that he would like to get the July futures close. Buyer justifies the price since it was a printed futures value.

Buyer and seller agree to $78



2013 (3.42%)2014 (3.20%)


HR 2051- Mandatory Price Reporting Act of 2015

NEGOTIATED FORMULA PURCHASE

The term ‘negotiated formula purchase’ means a purchase of swine by a packer from a producer under which—

(A) the pricing mechanism is a formula price for which the formula is determined by negotiation on a lot-by-lot basis; and

(B) the swine are scheduled for delivery to the packer not later than 14 days after the date on which the formula is negotiated and swine are committed to the packer.’’


CME Lean Hog Index Calculation



CME Lean Hog Index is a two-day weighted average of average net prices for slaughtered barrows and gilts as reported by USDA in its National Daily Direct Hog Prior Day Report-Slaughtered Swine (USDA Report LM_HG201).

The index calculation takes into account both negotiated hogs as well as swine or pork market formula hogs, and is calculated as follows:

CME Lean Hog Index = 2-Day Combined Total Value 2-Day Combined Total Weight



Correlation = 97%



Correlation = 99%



If the Negotiated Formula Purchase category is passed, the CME would likely need to include this column in the calculation since they would be coming out of the Swine or Pork Market Formula column.


Summary

•Percentage of negotiated hogs continues to decline

•Direct effect on contract hogs as well as CME futures

•When negotiating, referencing to a USDA value may push

it to the swine or pork market column

•Adding the Negotiated Formula column will help

•Producers that feel they are negotiating pigs need to

ensure they are being reported as negotiated

•Verify with Market News

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