Lean Hog is a type of hog (

pork Pork is the culinary name for the meat of the domestic pig (''Sus domesticus''). It is the most commonly consumed meat worldwide, with evidence of pig husbandry dating back to 5000 BCE. Pork is eaten both freshly cooked and preserved; ...

)

futures contract In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...

that can be used to hedge and to speculate on pork prices in the US. Lean Hog futures and options are traded on the Chicago Mercantile Exchange (CME), which introduced Lean Hog futures contracts in 1966. The contracts are for 40,000 pounds of Lean Hogs, and call for cash settlement based on the CME Lean Hog Index, which is a two-day weighted average of cash markets. Minimum tick size for the contract is $0.025 per pound, with each tick valued at $10 USD. Trades on the contract are subject to price limits of $0.0375 per pound above or below the previous day's contract settlement price, with an exception that there shall be no daily price limits in the expiring month contract during the last 2 Trading Days. Below are the Contract Specifications for Lean Hog futures on the CME: Lean Hog futures prices are widely used by U.S. pork producers as reference prices in marketing contracts for selling their hogs. Usage of marketing contracts tied to pork futures prices are correlated, and tend to increase, with the size of the producer. In addition, hog producers often trade pork futures contracts directly as part of a risk management program. Lean Hog futures prices are also a part of both the

Bloomberg Commodity Index The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited. The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) and renamed to Dow Jones ...

and the

S&P GSCI The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of ...

commodity index, which are benchmark indices widely followed in

financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial ma ...

by traders and

institutional investors An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linke ...

. Its weighting in these commodity indices give Lean Hog futures prices non-trivial influence on returns on a wide range of

investment fund An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages in ...

s and portfolios. Conversely, traders and investors have become non-trivial participants in the market for Lean Hog futures. Lean hog futures contracts are often grouped together with

feeder cattle Feeder cattle, in some countries or regions called store cattle, are young cattle mature enough either to undergo backgrounding or to be fattened in preparation for slaughter. They may be steers (castrated males) or heifers (females who have ...

and

live cattle Live cattle is a type of futures contract that can be used to hedge and to speculate on fed cattle prices. Cattle producers, feedlot operators, and merchant exporters can hedge future selling prices for cattle through trading live cattle futures, ...

futures contracts as ''livestock'' futures contracts. These commodities share many fundamental demand and supply risks, such long feeding periods, weather, feed prices, and consumer sentiment toward meat consumption, which makes grouping them together useful for commercial discussions about both the commodities and their futures contracts. Commodity indices have followed this practice and grouped these futures contracts together in livestock futures contracts categories.

References

CME Lean Hog contract specifications

CME Rule Book, Chapter 152: Lean Hog Futures
Pork Commodity markets {{meat-stub

See also

References