Chicago Mercantile Exchange is celebrating the 40th anniversary of its lean hog futures contract this month. An important indicator of grocery store prices for items such as pork chops, ribs and pork loin, annual contract volume has grown from just over 8,000 contracts since its launch in 1966 to more than two million contracts in 2005.
The CME lean hog contract has evolved since its inception from a contract of physically delivered live hogs into a cash settlement-only contract of lean hog carcasses, which makes this a more viable hedging tool for international producers and pork importers and/or exporters. The contract began to trade on the CME Globex electronic trading platform in 2002.
"The CME lean hog futures contract became the established marketplace to hedge price risk," explains CME Chairman Terry Duffy.
CME Chief Executive Officer Craig Donohue adds that CME first changed the delivery of lean hogs to cash settlement from physical delivery to make the product more accessible to global users. "Trading on CME Globex has broadened distribution of this contract and helped to increase volumes," he says.
Record single day volume for lean hogs reached 67,314 contracts on January 12, 2006. Average daily volume in April 2006 was 17,903 compared to 13,706 in April 2005. The average daily notional value of all lean hog contracts traded in April 2006 was more than $474 million.