Therefore, producers may consider also locking the Canadian dollar against the US. See Using Hedging to Protect Farm Product Prices for more details on the hedging process.Ĭhanges in the currency exchange rate affects the Canadian hog price. If the basis (described in more detail below) between the US and Canadian hog market at the time of exiting the hedge was at the level estimated when the hedge position was entered, then the profit on exiting the futures trade would offset the lower cash hog selling price. If, on a sell hedge, the futures market is lower at the time of exiting (or lifting) the hedge than when the hedge was entered, the futures trade result will be positive. In a true hedge, once the hogs are actually priced on the cash market (usually at the time of delivery), the futures hedge is exited by buying the same number of futures contracts for the same futures month as originally in the sell position. A hog producer would enter into (or opening) a sell futures position by using the lean hog futures contract nearest (immediately after) the date that the hogs are expected to be ready for sale. To hedge by directly using the futures market, an account with a commodity futures brokerage firm is required. December Canadian dollar futures at 85 cents US.December US lean hog futures at 62 cents/pound.Multiply by 2.205 to convert from pounds to kilograms.īelow is an example of converting a US hog futures price to a Canadian hog price, given the following factors: If the lean hog and currency futures months do not match, use the next exchange rate futures month after the lean hog futures month being converted.įinally, US hogs are priced in pounds and Canadian hogs are priced in kilograms so a weight conversion must also be completed. For example, if you are using the December lean hog futures, use the December Canadian dollar futures for the exchange conversion. Because there can be differences between the spot currency exchange and a forward currency exchange, the exchange rate to use depends on the month of hog futures used. Second, a currency conversion must also be done. This factor is derived from the respective dressing percentages of. To convert from a US dressed price to a Canadian dressed price, first multiply the US price by. An adjustment is therefore made to account for the differences in the average dressing percentage between the US and Canada. the average carcass weighs 74 per cent of the live animal weight), while the average dressing percentage in Canada is 80 per cent. The average dressing percentage of a US hog is 74 per cent, (i.e. To convert to a Canadian hog price, some adjustments must be made.įirst, there are differences in what remains with the carcass of a US hog compared to the carcass of a Canadian hog. The lean hog futures contract is hogs is based on carcass weight and is priced in US dollars per pound. An open futures position, either a sell or buy position, is cash settled against the CME LEAN HOG INDEX as of the day of expiry of a month of the lean hog futures contract. The holder of a futures market sell position may deliver to a participating slaughter plant at this index. Last Day of Trading: the 10th business day of the futures monthĭelivery Days: Cash settled to CME LEAN HOG INDEX (weighted average of three area packers). 80-.99 inches of backfat at the last rib or equivalent.Ĭontract Months: Feb, Apr, Jun, Jul, Aug, Oct, Dec carcass basis hogsĭescription: Packer base weight, 51-52% lean and. CME Lean Hog futures quotes are available at The only North American futures market for hogs trades on the Chicago Mercantile Exchange (CME). The Futures ContractĪ futures contract is a legal and binding agreement to deliver or accept delivery of a specific commodity on or before a specific date in the future. More information on other ways forward contracting of hogs is available in the module Hog Market Contracting. A hedge being done is to lock in the price (preferably a profitable one) regardless of whether the market goes up or down from that point.
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