Top Farmer Conference: January 5, 2024

Explore key factors influencing the U.S. economy & biofuels future. Join us for a one-day conference that will stimulate your thinking about agriculture's future and how you can position your farm to be successful in the years ahead. Attend in person in West Lafayette, Indiana or join us remotely.

May 26, 2021

Pork Cutout Futures Provide New Risk Management Tool

by James Mintert

In recent years there has been a significant rise in the number of hog contracts that rely upon wholesale pork prices, instead of live hog prices, as a pricing mechanism. Fundamentally the change arose from a desire to price hogs in a way that more closely corresponds to values that consumers pay for pork. However, the change in pricing arrangements made managing hog price risk more challenging since the primary risk management tools available were lean hog futures and options on lean hog futures. Although lean hog futures prices and pork cutout values are correlated, they can diverge significantly at times leading to interest in developing a risk management tool that more closely matches the price series used in many cash contracts. Recently CME Group launched pork cutout futures and options in an attempt to address this challenge.

Like lean hog futures, pork cutout futures are a cash settled contract. The new pork cutout futures are settled to the CME Pork Cutout Index. The cutout index is a five-business day weighted average of prices available in USDA’s National Daily Pork Report FOB Plant-Negotiated Sales-Afternoon report each day. The index is calculated by multiplying that day’s carcass value by the number of loads traded to determine the daily total value. That process is repeated for five consecutive business days. The sum of five daily total values is then divided by the total number of loads across those same five business days and the result is the CME Pork Cutout Index. The next business day the process is repeated, substituting the new day’s information for the oldest day’s value and load count. The resulting index is quoted in cents per pound.

The pork cutout contract, which started trading in November 2020, is the same size — 40,000 pounds — as the lean hog contract which could ease a transition from use of the lean hog to the pork cutout contract. Contract expiration months are February, April, May, June, July, August, October, and December, the same as for lean hog futures.

CME Group began publishing the CME Pork Cutout Index in early 2013 which makes possible a comparison over time between the cutout index and the CME Lean Hog Index. Although the hog and pork product indices are correlated, the two indices do not move together in lockstep. This suggests that for risk managers interested in managing wholesale product price risk, using the new cutout contract could be advantageous since it will more closely correspond to the cash price risk they are exposed to.

Typical for a new futures contract, volume and open interest to date has been small relative to existing contracts, although the nearby contracts have been actively trading. For example, in mid-May, the June 2021 pork cutout contract had open interest of nearly 750 contracts and a daily volume of over 30 contracts traded. This is still a small fraction of the open interest and volume for the June 2021 lean hog contract which, on the same day, had open interest of over 50,000 contracts and a daily volume of more than 15,000 contracts. Ultimately, if the new pork cutout futures contract is going to be successful, it will have to attract more volume and open interest to provide the liquidity hedgers need to effectively manage price risk.




Prospects for Swine Feed Costs in 2024

November 30, 2023

Indiana corn prices have dropped sharply since September. The most recent WASDE report indicates that corn prices could remain low for the foreseeable future. Obviously, lower expected corn prices will translate into lower expected feed costs during the first part of 2024. What trends in feed costs will we see for 2024? And what’s the impact of corn and soybean meal prices on feed costs for farrow-to-finish and swine finishing operations?


Agility and Producer Sentiment

October 3, 2023

Survey of U.S. farmers reveals how a farm’s agility relates to farm growth. Respondents were asked if they had established goals, objectives, and core values; whether their farm looked for opportunities that new enterprises may provide; whether they regularly assessed their advantages and disadvantages compared to other farms.


Absorption Capacity and Producer Sentiment

September 26, 2023

Survey of U.S. farmers reveals how absorption capacity drives farm growth and resilience. Respondents were asked if they had low per unit fixed costs, a diversified enterprise mix, and a strong balance sheet.



Purdue Income Tax School: Ag Tax Webinar

December 13, 2023

The 2023 Ag Tax Webinar, part of the Purdue Income Tax School, will provide in-depth coverage of selected agricultural and farm income tax issues to supplement material provided at the two-day in-person or virtual tax schools. The 2023 webinar will be taught by Guido Van Der Hoeven, an expert on agricultural tax issues and one of the authors of the 2023 Agricultural Tax Issues book, on Monday, December 13, 2023, starting at 9:00 am ET.

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Top Farmer Conference 2024

January 5, 2024

A management programs geared specifically for farmers. Surrounded by farm management, farm policy, agricultural finance and marketing experts, and a group of your peers, the conference will stimulate your thinking about agriculture’s future and how you can position your farm to be successful in the years ahead.

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2024 Crop Cost and Return Guide

November 22, 2023

The Purdue Crop Cost and Return Guide offers farmers a resource to project financials for the coming cropping year. These are the November 2023 crop budget estimations for 2024.


(Part 2) Indiana Farmland Cash Rental Rates 2023 Update

August 7, 2023

Purdue ag economists Todd Kuethe, James Mintert and Michael Langemeier discuss cash rental rates for Indiana farmland in this, the second of two AgCast episodes discussing the 2023 Purdue Farmland Values and Cash Rents Survey results.


(Part 1) Indiana Farmland Values 2023 Update

August 6, 2023

Purdue ag economists Todd Kuethe, James Mintert and Michael Langemeier discuss Indiana farmland values on this, the first of two AgCast episodes discussing the 2023 Purdue Farmland Values and Cash Rents Survey results. Each June, the department of agricultural economics surveys knowledgeable professionals regarding Indiana’s farmland and cash rental market.