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Structure of the Live Oak, Florida
Hog Basis,
January, 1972
- October, 1980
James R. Simpson and Ronald W. iWardiA
;.^ ~v s
SEASONAL FLUCTUATION IN LOCAL HOG MARKET PRICES
Florida Cooperative Extension Service / Institute of Food and Agricultural Sciences / University of Florida / John T. Woeste, Dean
Circular 501
rSeptember 1981
STRUCTURE OF THE LIVE OAK, FLORIDA
HOG BASIS, JANUARY, 1972 OCTOBER, 1980
James R. Simpson
Ronald W. Ward
ABSTRACT
This report contains an examination of the Live Oak, Florida hog
futures market basis for the period 1972-1980. Basis tables and graphs
are presented for two weight groups of Florida hogs; barrows and gilts,
180-199 Ibs., and barrows and gilts, 200-240 lbs.
The results indicate that there are very definite seasonal fluctua-
tions, with about a $7 difference between the peaks (February and August)
and the troughs (April and November). The report concentrates on basis
patterns, but also contains an explanation of basis as it relates to hog
producers, as well as definitions of terms used in hedging.
Key words: hog basis, basis, hedging, Florida, futures market,
hog futures.
TABLE OF CONTENTS
Page
ABSTRACT. .. . . . ... . .... i
LIST OF TABLES. . . . ... ... iii
LIST OF FIGURES . . . . . . iv
INTRODUCTION . . . .. .. ..... ... .1
METHODOLOGY . . .. . . . . 4
BASIS TABLES AND CHARTS . . . .... .. 5
HOW A HOG HEDGE WORKS . . . .... .. 7
SUMMARY AND CONCLUSIONS . . . . .. 10
REFERENCES . . . . .. . . 24
APPENDIX I DEFINITIONS . . . . . 25
APPENDIX II CONTRACT SPECIFICATIONS. .. . . . 26
LIST OF TABLES
Table Page
1 Weekly basis, 180-200 lb. and 200-240 lb. barrows and gilts,
Live Oak, Florida, January 7, 1972-October 31, 1980. 12-18
2 Approximate relationship between week number and month, and
week within the month. . . . . ... 19
3 Weight ranges used in the reporting of 180-240 pound barrows
and gilts at Live Oak, 1972-1980 . . .. 20
4 Average basis and standard deviation, 180-200 lb. barrows
and gilts, and 200-240 lb. barrows and gilts in Florida,
January 7, 1972-October 31, 1980 ...... . .. 21
LIST OF FIGURES
Figure Page
1 Basis, barrows and gilts, 180-200 Ibs., Live Oak, Florida,
1972-1980. . . . . ... ...... 22
2 Basis, barrows and gilts, 200-240 Ibs., Live Oak, Florida,
1972-1980. . . . . ... ...... 23
STRUCTURE OF THE LIVE OAK, FLORIDA
HOG BASIS, JANUARY, 1972 OCTOBER, 1980
James R. Simpson and Ronald W. Ward
Price movements are a major factor leading to the economic success
or failure of hog production. Producers not protected against adverse
price movements must be in a financial position to withstand consider-
able economic losses. Hog producers, like all livestock and crop pro-
ducers, face uncertainties in both production and prices. Improvements
in management and new production technologies can greatly reduce the
individual's production uncertainties and thus lead to potential increased
profits. Producers have control over some factors that lead to production
uncertainties but, in contrast, few producers are of sufficient size to
have an appreciable influence on their product's price once it enters
the market channel. Rather, they are price takers and face marketplace
uncertainties. This circular is aimed at providing information for
hedging, one popular form of reducing risk from price uncertainty.
Introduction
A number of pricing institutions have evolved over time to address
the problem of price risk. Futures trading is one alternative that has
proven useful for producers. Futures contract specifications, geographical
production differences, and industry size are but a few determinants
affecting applicability of a futures market to specific producers. The
trading concept is rather simple and easily implementable, but the use
JAMES R. SIMPSON is Associate Professor and Extension Livestock
Marketing Economist, and RONALD W. WARD is Professor, in the Food and
Resource Economics Department.
of this tool requires careful planning and analysis. The intent of this
circular is not to outline a detailed planning strategy. Rather, it con-
centrates on the basis, an aspect fundamental to successful use of the
market.
Consider an example where a decision is made to feed hogs out to a
marketable weight range of 200-230 pounds. The producer may implement
production plans and four months later sell hogs on the cash market.
Obviously, the risk of a low price must beborneby the producer. Alter-
natively, if the same producer were to forward price the hogs by selling
futures contracts, the price risk would theoretically be zero. The hogs
could simply be delivered against the forward commitment.
In actuality, the trading procedure is not quite as simple as des-
cribed above. Delivery points are sometimes inaccessible to local pro-
ducers, and hog grades frequently do not adequately match up with those
characteristics outlined in the contract. Under these circumstances the
producer has only one option, which is to reverse the futures position
when the hogs are ready for the market. The futures contract is bought
back and hogs sold are sold in the cash market. The realized returns from
hog production then depend on what happens when the futures position is
terminated. The success of these activities ultimately depends on the
closing "basis," i.e. the spread or difference between the cash price
and the futures price.
The "realized price" will always equal the initial forward price
less the closing basis (the closing basis is the basis when an offsetting
contract is bought back or the hogs are delivered). The price risk now
lies in the basis change and not just with the cash market. One would
expect the cash and futures prices to be highly related if both
represent nearly the same commodity. But frequently, the local cash
market and the futures market are not closely related, and the basis
fluctuation is quite large. Here, the price risk to the producer could
conceivably be as large as with no forward pricing alternative.
As evident from the above explanation, the basis is fundamental to
successful use of futures contracts. The more removed a local market is
from the mainstream of the particular industry, the greater the probability
of increases in basis fluctuations. If one knows the probability and
range of basis changes during the period hogs are being marketed, then
one can easily calculate an expected price by taking the established
forward price and adjusting for the range of closing basis. As a general
rule, the price risk from this type of transaction is substantionally less
than only being in the cash market.
The basis reflects changes in the difference between futures and
local cash prices and, as such, it is extremely important over the pro-
duction period as a determining factor influencing hedging returns [2].
If, for example, the basis narrows from the time when the hedge (selling
contracts or "short hedging") was placed until the contract is closed,
the hog producer would have benefited from such favorable basis narrowing.
On the other hand, a widening of the basis works to the disadvantage of
short hedgers. Consequently, understanding the basis is central to any
successful hedging program [1].
The subsequent analysis is not intended to provide a detailed dis-
cussion of hedging. Rather, an analysis of basis patterns is presented
which Florida hog producers can use to develop successful hedging pro-
grams. As such, the following analysis presents: (1) basis analysis
giving tables and charts using Live Oak hog prices from January, 1972
through October, 1980; (2) further explanation of "basis" as it relates
to Florida hog producers.
Methodology
Futures price data were obtained from The Yearbook of the Chicago
Mercantile Exchange (CME) for the years 1972-1978 and daily reports for
1979 and 1980 [4]. The daily closing quote is from Monday while the Live
Oak auction is held on a Wednesday. The cash prices were obtained from
the Florida Livestock Market Report published weekly in Winter Park by
the Florida Depattment of Agriculture and Consumer Services (in conjunc-
tion with the Federal-State Market News Service). The data shown are
from the Wednesday market but are recorded as a Friday date to confirm
with the Report's release time. The cash prices are subject to limitations
of Market News Service data. For example, the prices are simple averages
of the market rather than being weighted by market volumes.
Cash prices are subtracted from futures prices to calculate the basis,
i.e. B = F-C. A positive number means that the futures price is higher
than the particular cash price. A negative number means the futures
price is lower than the cash price. Also, the basis reported is tied
to the nearby contract, i.e., the contract closest to the month the pro-
duct is being sold [3].
Judgement is required in determining the time to change from one
contract to the next one. Our approach is to switch to a new contract
month beginning the first day when the current contract is in the termi-
nating month even though trading in the current contract continues through
the 20th of the month or the last business day preceding the 20th. For
example, the April contract is traded until the 20th of April at the
CME, but our basis is shifted to the June contract as of April 1st. Con-
tract months are February, April, June, July, August, October and December.
Due to data limitation the February contract is not included in the basis
calculations. Thus, the nearest month for January, is April.
Basis Tables and Charts
The basis by week for the entire period 1972-1980 is given in Table 1.
The column labeled "weekday" corresponds to the Friday release date of
the Florida Livestock Market Report. The approximate relationship between
week number and month, and week within the month is given in Table 2.
The column in Table 1 labeled "180-200 lb.", is the average basis
of 180-199 pound barrows and gilts while the next column, "200-240 Ib."
is the average basis of 200-240 pound barrows and gilts. During the
period covered the weight range reported changed three times so that
slight weight variations are incorporated in the average basis for the
entire period. The weight ranges used in the reporting system are shown
in Table 3.
The average basis, as well as the standard deviations for both
weight ranges over the entire period, is given in Table 4. The number
4.20 at the top of the first column, for example, means that the Live
Oak cash price in the first week of January is $4.20 less than the price
of the nearby futures contract, which is April. The second number down
in the first column, 1.67 means that the average Florida cash price in
the second week of January is $1.67 below the April contract futures
quote.
Following is a table to help ascertain the relations in positive
and negative numbers between the futures and cash markets.
Numerical sign Relation between markets
Positive Futures higher than cash or, alternatively
cash lower than futures
Futures is lower than cash or, alternatively
negative cash is higher than futures
The standard deviation for the overall average basis is presented
in the third column. The number 3.29 in the second line means that ap-
proximately 68 percent of the measurements lie $3.29 above the average
basis of $1.67 for that week and $3.29 below the average basis. In other
words, 68 percent of the time the basis would fall in the range between
+$1.62 and -$4,96.
The average basis for 200-240 pound barrows and gilts is found in
the fourth column, with its standard deviation immediately following.
The interpretation of the numbers is the same as given above.
Charts of the basis for the two different weight classes are given
in Figures 1 and 2. The solid line shows the basis derived from the
average of the weekly prices. It corresponds to the data given in
Table 4. The dotted lines below show the basis that would be relevant
to producers who expect their hogs to only receive the lowest prices in
the Live Oak market. The upper line, on the other hand, is the basis
that would be most relevant to producers who would expect their hedged
hogs to command the top market price.
A seasonality effect is apparent in both figures, with Florida prices
being farthest below futures prices in April (about $6 difference) and
November (about $4 difference). Hedgers should be careful in using the
futures market to account for these variations as well as the ones within
a week. The next section provides a summary of how a Florida producer
can use the tables in estimating profitability from potential hedges
and evaluate the effect of a widening or narrowing basis.
How A Hog Hedge Works
Let's assume that as a producer you plan to have 150 hogs ready for
market in December. It is now July. You are concerned that hog prices
may drop and are considering hedging as a risk averting strategy. Following
are the steps to determine if you want to hedge. In addition, tnere is an
explanation of how to use this publication's tables for making the decision.
Begin by assuming that your hogs will weigh 220 pounds when finished
in the third week of December. The December futures quote is $52.00 so
the futures potential is:
Step 1. Check the futures potential (Base situation)
Item Dollars per cwt.
December hog futures contract quote in July 52.00
Basis in December (week 50, Table 4) subtract 0.59
Localized price 51.41
The basis for week 50 (mid-December) is $0.59 which means that the
futures price for 200-240 pound barrows and gilts historically have
averaged $0.59 above the cash or spot quote. The profit potential from
using the futures market is then:
Step 2. Determine the profit potential (Base situation)
Item Dollars per cwt.
Localized price 51.41
Feeding costs (including feeder pig cost) subtract 50.00
Profit potential 1.41
If feeding costs are estimated to be $50.00, then a profit potential
of $1.41 can potentially be "locked-in" by forward contracting on the
futures market. If this appears to be a satisfactory profit and you
feel comfortable about locking this potential profit in, then one contract
(30,000 Ibs.) of live hogs would be sold.
Narrowing or widening basis
Examination of Table 4 indicates that the basis during December
fluctuates from -$0.74 to $3.08 as shown below:
Week 200-240 Ib. barrows & gilts
Week in Standard
number December Basis deviation
-----Dollars per cwt.-------
48 1 1.33 3.35
49 2 -0.74 4.33
50 3 0.59 4.61
51 4 -0.45 3.89
52 5 3.08 1.17
Source: Table 4
It is possible, for example, that the hogs are sold in the second
week rather than the third week in which case the average basis histori-
cally has been -$0.74. In effect, the futures quote is $0.74 below the
Florida cash price. Now, steps one and two would be as follows:
Step 1. Check the futures potential (Narrower basis)
Item Dollars per cwt.
December hog futures contract quote in July 52.00
Basis in December subtract -0.74 a/
Localized price 52.74
a/Subtracting a negative number requires an addition function
Step 2. Check the profit potential (Narrower basis)
Item Dollars per cwt.
Localized price 52.74
Feeding costs 50.00
Profit potential 2.74
The net result of this narrower basis is that a profit of $2.74 per
cwt. would be realized rather than the $1.41 which was originally pro-
jected.
The third situation which might occur is a wider basis than in the
base situation. For example, the hogs might be sold the last week when
the average basis historically has been $3.08. In this case the profit
potential is:
Step 1. Check the futures potential (Wider basis)
Item Dollars per cwt.
December hog futures contract quote in July 52.00
Basis in December subtract 3.08
Localized price 48.92
Step 2. Check the profit potential (Wider basis)
Item Dollars per cwt.
Localized price 48.92
Feeding costs 50,00
Profit potential -1,08
The result of the wider basis is a potential loss of -$1.08. In
summary, the profit potential fluctuated between $2.74 and -$1.08 per
cwt. in one month just due to differences in the average basis.
Another source of error, which could either benefit or harm the
Florida hedger, is the fluctuations in any given week between years.
For example, in week 49 when the average basis was -$0.74, the standard
deviation was $4.33. This means that 68 percent of the time the basis
will not fluctuate more than $4.33 above the average basis and $4.33
below the average. In other words, if a hedge were placed with the in-
tention of lifting it the second week of December, a Florida producer
should be prepared to have a final or realized basis that varies sub-
stantially from the average of -$0.74. If there is a desire to minimize
the risk of reduced profit potential from a widening basis, then the
potential hedger would want to use a more conservative basis estimate
than the average shown in the tables for the week being considered. If
the basis is a positive number, this means using a smaller positive
number or perhaps even a negative number. If the average basis is a
negative (because the Florida cash price is higher than the futures
price) then a larger negative number would be used.
Further examination of the tables indicates that the highest standard
deviations occur in December and January. Relatively small standard de-
viations ($1.00-2.00) are found in many months during the year which means
that the risk from basis fluctuations is minimized at this time.
Summary and Conclusions
Basis tables and charts are presented for two weight groups of Florida
hogs, 180-200 pounds, and 200-240 pounds. The rather wide seasonal fluc-
tuations, combined with significant fluctuations in any week between years
(as shown by the standard deviation) indicates that while the futures
market can be an effective tool for reducing price risk, considerable
(10)
caution should be exercised when using the futures market for hedging.
The standard deviations are rather wide, but hog producers can benefit
by using the futures market particularly in months in which there are
relatively low standard deviations and minimal week-to-week fluctuations
in the basis. This circular provides the information to determine when
the basis fluctuation is relatively low, and consequently the risk from
basis movements is minimized.
(11)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980
Obser- Week- Basis
vation Year Month day 1O-2Olb 200-2401b Week
--Dollars per cwt.--
1 72 1 7 4.20 2.550 1
2 72 1 14 3*18 1.900 2
3 72 1 21 1.80 t1250 3
4 72 1 28 2.10 1.550 4
5 72 2 4 1.62 1.020 5
6 72 2 11 -0.53 -0.930 6
7 72 2 18 -0.93 -1o805 7
8 72 2 25 0.15 -0.700 8
9 72 3 3 0.65 -0.175 9
10 72 3 10 0.82 -0.430 10
11 72 3 17 2.30 to575 II
12 72 3 24 2.30 1.825 12
13 72 3 31 2.87 1.495 13
14 72 4 7 5.25 3.875 14
15 72 4 14 5.30 3.900 15
16 72 4 21 5.70 4.425 16
17 72 4 28 5.30 4.300 17
18 72 5 5 4.75 3.725 18
19 72 5 12 3.65 2.775 19
20 72 5 19 3.10 2.400 20
21 72 5 26 2.82 1.620 21
22 72 6 2 3*35 2.375 22
23 72 6 9 3.22 2.095 23
24 72 6 16 2.95 1.600 24
25 72 6 22 2*60 1.850 25
26 72 6 30 3 90 2.550 26
27 72 7 7 2.67 1.345 27
28 72 7 14 2.72 1.695 28
29 72 7 21 2.00 0.875 29
30 72 7 28 1.10 0*600 30
31 72 8 4 -0.50 -1.900 31
32 72 8 11 -0.35 -1.050 32
33 72 8 18 -0.95 -1.500 33
34 72 8 25 -0.26 -0.525 34
35 72 9 1 -0.08 -0.755 35
36 72 9 8 110 -0.050 36
37 72 9 15 0.37 -0.805 37
38 72 9 22 1.20 0*650 38
39 72 9 29 1.15 0.875 39
40 72 10 6 1.12 0.300 40
41 72 10 13 1.15 0.300 41
42 72 10 20 1.22 0.295 42
43 72 10 27 1.52 0.820 43
44 72 11 3 2,05 0.800 44
45 72 11 10 2.35 1.725 45
46 72 11 17 2.42 1*495 46
47 72 11 24 1.85 1.325 47
48 72 12 1 -1.59 -2.530 48
49 72 12 8 -2.30 -3o575 49
50 72 12 15 -1.25 -2.075 50
51 72 12 22 -1010 -2.500 51
52 72 12 29 52
53 73 1 5 1
54 73 1 12 -1.10 -3.025 2
55 73 1 19 -1.43 -2*980 3
56 73 1 26 -0.58 -1.405 4
57 73 2 2 -0.90 -2.100 5
58 73 2 9 -1.58 -20805 6
59 73 2 16 -3.00 -4.225 7
60 73 2 23 -1.30 -2.850 8
61 73 3 2 -1.30 -2.125 9
62 73 3 9 -0.85 -2.300 10
63 73 3 16 1*92 1.270 tt
64 73 3 23 1.60 0.700 12
65 73 3 30 7.02 5.345 13
66 73 4 6 0.00 -0.925 14
67 73 4 13 1.40 0.900 15
68 73 4 20 -0.05 0.250 16
69 73 4 27 1.50 0.250 17
7C 73 5 4 3*17 2.180 18
71 73 5 11 3.72 2.820 19
72 73 5 18 2.25 0.950 20
73 73 5 25 2.95 2.700 21
74 73 6 1 4.15 2.875 22
75 73 6 8 4 75 3.575 23
(32)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980--cont.
Obser- Week- Basis
vation Year Month day 189-2001b 200-2401b Week
--Dollars per cwt.--
76 73 6 15 4.34 3.450 24
77 73 6 22 4.50 3.575 25
78 73 6 29 3.62 2.420 26
79 73 7 6 27
80 73 7 13 5.55 4.375 28
81 73 7 20 6.10 3.800 29
82 73 7 27 1.75 -0.700 30
83 73 8 3 -1.63 -4.830 31
84 73 8 10 -4.00 -8.050 32
85 73 8 17 0.40 2.000 33
86 73 8 24 -0.50 -2*450 34
87 73 8 31 5.75 3.200 35
88 73 9 7 3.27 1.270 36
89 73 9 14 0.77 -1.330 37
90 73 9 21 1.05 -1.050 38
91 73 9 28 -3.80 -5.100 39
92 73 10 5 4.05 1.725 40
93 73 10 12 4.80 3.725 41
94 73 10 19 4.75 3.375 42
95 73 10 26 1.72 0.720 43
96 73 11 2 0.80 -0.800 44
97 73 11 9 4.52 3.920 45
98 73 11 16 5.00 3.800 46
99 73 11 23 5.00 3.850 47
100 73 11 30 4.22 3.520 48
101 73 12 7 1.67 1.395 49
102 73 12 14 6.82 6.120 50
103 73 12 20 0.65 -0.125 51
104 73 12 27 52
105 74 1 4 1
106 74 1 11 6.80 6.575 2
107 74 1 18 7.15 5.800 3
108 74 1 25 5*95 4.875 4
109 74 2 1 6.35 4.550 5
110 74 2 8 2.85 1e800 6
111 74 2 15 1.80 0.250 7
112 74 2 22 1.35 0.125 8
113 74 3 1 0.75 -0.100 9
114 74 3 8 1.50 -0.200 10
115 74 3 15 3.45 2o250 11
116 74 3 22 4.15 3.200 12
117 74 3 29 0.15 -0a175 13
118 74 4 5 6.40 5.400 14
119 74 4 12 9.95 8.550 15
120 74 4 19 9.10 7.050 16
121 74 4 26 7.20 5.600 17
122 74 5 3 5.67 4.845 18
123 74 5 10 3.05 2.850 19
124 74 5 17 4.60 3.550 20
125 74 5 24 2.65 0.500 21
126 74 5 31 0.55 -0.675 22
127 74 6 7 3.20 1.950 23
128 74 6 14 2.25 1.625 24
129 74 6 21 25
130 74 6 28 -1.93 -4.080 26
131 74 7 5 27
132 74 7 12 0.40 0.150 28
133 74 7 19 2.37 1.520 29
134 74 7 26 6.90 4*750 30
135 74 8 2 7.15 5.400 31
136 74 8 9 2.97 0.970 32
137 74 8 16 0.50 -0.750 33
138 74 8 23 0.90 -0.100 34
139 74 8 30 2.80 1.100 35
140 74 9 6 -2.23 -3.480 36
141 74 9 13 1030 -0.800 37
142 74 9 20 -0.43 -2.005 38
143 74 9 27 1.65 0.175 39
144 74 10 4 8.05 6.625 40
145 74 10 11 3.32 2.420 41
146 74 10 18 4.65 3.250 42
147 74 10 25 7.85 5.875 43
148 74 11 1 6.50 5.350 44
149 74 11 8 4.15 2.250 45
150 74 11 15 4.35 2.800 46
(13)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980--cont.
Obser- Week- Basis
vation Year Month day 180-2001b 200-2401b Week
--Dollars per cwt.--
151 74 11 22 1.10 -0.625 47
152 74 11 29 48
153 74 12 6 4.85 3.375 49
154 74 12 13 7.00 5.775 50
155 74 12 20 6.07 5o320 51
156 74 12 27 52
157 75 1 3 1
158 75 1 10 4.45 3.300 2
159 75 1 17 3.10 2.600 3
160 75 1 24 1.00 -0.425 4
161 75 1 31 4.82 2.600 5
162 75 2 7 3.40 2*550 6
163 75 2 14 2.50 1.650 7
164 75 2 21 3.55 3.300 8
165 75 2 28 3.10 2.200 9
166 75 3 7 -0.60 -1.325 10
167 75 3 14 1.00 0.275 11
168 75 3 21 2.85 1.900 12
169 75 3 28 5.02 4.470 13
170 75 4 4 7.60 5.800 14
171 75 4 11 6.40 5.325 15
172 75 4 18 7.20 5.625 16
173 75 4 25 7.90 6.025 17
174 75 5 2 6o75 5.225 18
175 75 5 9 5 10 3.650 19
176 75 5 16 2.90 1.750 20
177 75 5 23 1 95 21
178 75 5 30 3.50 3.000 22
179 75 6 7 1.20 2.350 23
180 75 6 14 4.55 2.900 24
181 75 6 21 4.62 1.520 25
182 75 6 27 -0.25 -1.750 26
183 75 7 3 3.10 2.450 27
184 75 7 11 -1.00 -2*775 28
185 75 7 18 1.75 -0.075 29
186 75 7 25 1.10 -0.600 30
187 75 8 1 -3.45 -5.600 31
188 75 8 8 -5.40 -6.650 32
189 75 8 15 -2*35 -6.050 33
190 75 8 21 -4.00 -5.250 34
191 75 8 29 -1.05 -2,800 35
192 75 9 5 -0.30 -2.950 36
193 75 9 12 1.00 -1.200 37
194 75 9 19 2.35 0*200 38
195 75 9 26 3.80 1.950 39
196 75 10 3 4.50 2.850 40
197 75 10 10 3.60 2 700 41
198 75 10 17 2.87 1.745 42
199 75 10 24 -0.28 -0*905 43
200 75 10 31 4*90 3 300 44
201 75 11 7 5.10 45
202 75 11 14 6.55 5.475 46
203 75 11 21 7*45 6.100 47
204 75 11 28 48
205 75 12 5 -3.03 -5.980 49
206 75 12 12 -3.38 -4.880 50
207 75 12 19 -1.58 -2.555 51
208 75 12 26 52
209 76 1 2
210 76 1 9 -1.05 -2.450 2
211 76 1 16 -2.20 -3.300 3
212 76 1 23 -2.25 -3.550 4
213 76 1 30 -6.20 -7*900 5
214 76 2 6 -5.80 -7.075 6
215 76 2 13 -3.35 -4.400 7
216 76 2 20 0.75 -1.650 8
217 76 2 27 -0.15 -2*450 9
218 76 3 5 -1*30 -2.425 10
219 76 3 12 0.10 -1.000 11
220 76 3 19 1.50 0.550 12
221 76 3 26 1.60 -0.450 13
222 76 4 2 2*52 1.395 14
223 76 4 9 4.37 3.070 15
224 76 4 16 5*65 4.350 16
225 76 4 23 5*85 5.000 17
(14)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980--cont.
Obser- Week- Basis
vation Year Month day 180-2001b 200-2401b Neek
--Dollars per cwt.--
226 76 4 30 5.00 2.900 18
227 76 5 7 5.70 3.850 19
228 76 5 14 3.65 1.850 20
229 76 5 21 0.32 -0.330 21
230 76 5 28 2.65 1.775 22
231 76 6 4 2.40 1.175 23
232 76 6 11 2.85 2.200 24
233 76 6 18 5.00 3 675 25
234 76 6 25 2.80 1.650 26
235 76 7 2 1.15 -0.050 27
236 76 7 9 -2.35 -40250 28
237 76 7 16 -0.33 -1.230 29
238 76 7 23 0.30 -1.750 30
239 76 7 30 0.60 -0.800 31
240 76 8 6 -3.05 -4.150 32
241 76 8 13 -3e60 -5*750 33
242 76 8 20 -2.15 -3.300 34
243 76 8 27 -1.05 -2.975 35
244 76 9 3 -0.75 -2.250 36
245 76 9 10 -0.25 -2.025 37
246 76 9 17 -0.45 -1.325 38
247 76 9 24 -0.25 -1.150 39
248 76 10 1 -1.45 -3.325 40
249 76 10 8 -1.60 -3.325 41
250 76 10 15 0.65 -0.100 42
251 76 10 22 -1.20 -1.750 43
252 76 10 29 -1.35 -1.875 44
253 76 11 5 -2.73 -3.780 45
254 76 11 12 -0.75 -2.800 46
255 76 11 19 -0.20 -1.500 47
256 76 11 26 48
257 76 12 3 -4.40 -4.900 49
258 76 12 10 -2.60 -4.550 50
259 76 12 17 -4.70 -6.700 51
260 76 12 24 52
261 76 12 31 1
262 77 1 7 -2.05 -4.200 2
263 77 1 14 -1.30 -2.250 3
264 77 1 21 -4.73 -6.580 4
265 77 1 28 -1.75 -3.975 5
266 77 2 4 -2*05 -3*150 6
267 77 2 11 -1.50 -3.150 7
268 77 2 18 -1.80 -2*150 8
269 77 2 25 -0*28 -1.905 9
270 77 3 4 -2.95 -3.700 10
271 77 3 11 -1.50 -3.000 11
272 77 3 18 0.05 -1.050 12
273 77 3 25 1.17 -0,030 13
274 77 4 1 3.45 2.625 14
275 77 4 8 4.50 3.400 15
276 77 4 15 4.55 2.800 16
277 77 4 22 5.40 4.350 17
278 77 4 29 4*72 2.520 18
279 77 5 6 4.65 3.025 19
280 77 5 13 0.90 -1.225 20
281 77 5 20 -1.90 -3,700 21
2A2 77 5 27 -1.80 -2.850 22
283 77 6 3 6.07 3.120 23
284 77 6 10 7.35 6.100 24
285 77 6 17 4.10 2.550 25
286 77 6 24 6.10 2.700 26
287 77 7 1 3.30 1.400 27
288 77 7 8 3.00 1.050 28
289 77 7 15 3.30 0.850 29
290 77 7. 22 2.25 0.450 30
291 77 7 29 2.85 0.400 31
292 77 8 5 -5.10 -7.000 32
293 77 8 12 -4.60 -6.300 33
294 77 8 19 -3.35 -6.050 34
295 77 8 26 -0.75 -2o350 35
296 77 9 2 -0.15 -2.100 36
297 77 9 9 37
298 77 9 16 1.15 -0.850 38
299 77 9 23 2.60 0.150 39
300 77 9 30 2.45 -0.250 40
(15)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980--cont.
Obser- Week- Basis
vation Year Month day 180-2001b 200-2401b Week
--Dollars per cwt.--
301 77 10 7 -0*45 -3.800 41
302 77 10 14 -0.85 -2.725 42
303 77 10 21 0.45 -1.500 43
304 77 10 28 0.40 -2.900 44
305 77 11 4 1.72 -0.030 45
306 77 11 11 1.60 0.500 46
307 77 11 18 2.52 1.620 47
308 77 11 25 4.30 3.000 48
309 77 12 2 -2.25 -4.000 49
310 77 12 9 50
311 77 12 16 0 51
312 77 12 23 52
313 77 12 30 1
314 78 1 6 1.47 0.120 2
315 78 1 13 -0.15 -2.300 3
316 78 1 20 -3.80 -3.850 4
317 78 1 27 -0.95 -3e250 5
318 78 2 3 -1.83 -3.280 6
319 78 2 10 0.30 -1.300 7
320 78 2 17 -0.35 -1.950 8
321 78 2 24 0 9
322 78 3 3 -0.60 -1.950 10
323 78 3 10 0.75 -3.250 11
324 78 3 17 7.55 1.950 12
325 78 3 23 -0.70 -2.700 13
326 78 3 31 3.35 1.850 14
327 78 4 7 10.75 8.750 15
328 78 4 14 10.00 7.675 16
329 78 4 21 10.35 8*200 17
330 78 4 28 7.95 5.350 18
331 78 5 5 8.70 6e050 19
332 78 5 12 6. 10 4.100 20
333 78 5 19 9.55 5*675 21
334 78 5 26 7.65 5.750 22
335 78 6 2 8.70 7.250 23
336 78 6 9 7.60 5.650 24
337 78 6 16 8.65 4o250 25
338 78 6 22 6*27 2*970 26
339 78 6 30 4.45 1.150 27
340 78 7 7 28
341 78 7 14 4.35 1.300 29
342 78 7 21 3.70 1.000 30
343 78 7 28 2.40 0.000 31
344 78 8 4 32
345 78 8 11 3.20 -0.450 33
346 78 8 18 1.60 -1.150 34
347 78 8 25 0.95 -lo900 35
348 78 9 1 3.10 0.150 36
349 78 9 8 3.70 1.200 37
350 78 9 15 5.25 2*000 38
351 78 9 22 4.75 2.250 39
352 78 9 29 4.80 2.000 40
353 78 10 6 5.60 2.850 41
354 78 10 13 7.25 4.250 42
355 78 10 20 5.50 2.200 43
356 78 10 27 0.700 44
357 78 t1 3 4.30 2.350 45
358 78 11 9 5.55 3.350 46
359 78 11 17 7.20 5*050 47
360 78 11 22 48
361 78 12 1 5.70 2.500 49
362 78 12 8 2.55 0.650 50
363 78 12 15 3*62 2.070 51
364 78 12 21 4.25 2.250 52
365 78 12: 29 I
366 79 1 5 2
367 79 1 12 0.85 -1.600 3
368 79 1 19 1.65 -0.200 4
369 79 1 26 1.50 -1.750 5
370 79 2 2 2.95 1.250 6
371 79 2 9 1.30 -2.450 7
372 79 2 16 2.47 -1.130 8
373 79 2 23 9
374 79 3 2 4.85 2.550 10
375 79 3 9 4.07 11
(16)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980--cont.
Obser- Week- Basis
vation Year Month day 180-2001b 200-2401b Week
--Dollars per cwt.--
376 79 3 16 4.60 12
377 79 3 23 3.45 13
378 79 3 30 5.62 14
379 79 4 6 7.42 5.420 15
380 79 4 13 9.47 6.770 16
381 79 4 20 17
382 79 4 27 9.32 7.270 18
383 79 5 4 8*15 6.400 19
384 79 5 11 6.77 5.070 20
385 79 5 18 5.25 21
386 79 5 25 4.77 2.070 22
387 79 6 1 2 3 23
388 79 6 8 6.05 3.250 24
389 79 6 15 25
390 79 6 22 5.15 2.150 26
391 79 6 29 -0.60 -3.600 27
392 79 7 6 28
393 79 7 13 3.95 2.650 29
394 79 7 20 3.12 1.170 30
395 79 7 27 3*70 31
396 79 8 3 2.75 -0.400 32
397 79 8 10 1.12 33
398 79 8 17 0.50 -1.250 34
399 79 8 24 0.17 -2*280 35
400 79 8 31 1.05 -0.250 36
401 79 9 7 2.07 -0.380 37
402 79 9 14 2.92 0.920 38
403 79 9 21 1.57 0.570 39
404 79 9 28 1.17 0.320 40
405 79 10 5 3.55 3.500 41
406 79 10 12 2.25 1.250 42
407 79 10 19 2.50 2.500 43
408 79 10 26 5.82 6.020 44
409 79 11 2 5.45 4.650 45
410 79 11 9 5.82 3.870 46
411 79 11 16 8.25 5.750 47
412 79 11 23 48
413 79 11 30 5.35 5.250 49
414 79 12 7 4.52 3.120 50
415 79 12 14 2.57 1.370 51
416 79 12 21 4.80 3.900 52
417 79 12 28 1
418 80 1 4 o 2
419 80 1 11 4*55 4*050 3
420 80 1 18 5.02 4.420 4
421 80 1 25 6.57 4.520 5
422 80 2 1 6.00 30950 6
423 80 2 8 4.77 4.170 7
424 80 2 15 4.95 3.350 8
425 80 2 22 4.00 1*650 9
426 80 2 29 3.57 o1270 10
427 80 3 7 5.72 4.620 11
428 80 3 14 4.37 3.320 12
429 80 3 21 5.35 3.800 13
430 80 3 28 5.30 3.650 14
431 80 4 4 8.80 7.200 15
432 80 4 11 9*80 8.500 16
433 80 4 18 9.65 7.950 17
434 80 4 25 8.27 60945 18
435 80 5 2 7.27 6.970 19
436 80 5 9 6.50 4.100 20
437 80 5 16 6.20 5.150 21
438 80 5 23 5080 4.150 22
439 80 5 30 6.50 3.200 23
440 80 6 6 3.95 1.850 24
441 80 6 13 5.22 3.070 25
442 80 6 20 2.00 0.000 26
443 80 6 27 0*85 -0.400 27
444 80 7 4 2.25 -0.050 28
445 80 7 11 2*60 0.925 29
446 80 7 18 3.40 1.650 30
447 80 7 25 2.55 1.150 31
448 80 8 1 0.62 -1.980 32
449 80 8 8 0*80 -1.800 33
450 80 8 15 -0.90 -2.100 34
(17)
Table l.--Weekly basis, 180-200 lb. and 200-240 lb.
barrows and gilts, Live Oak, Florida,
January 7, 1972 October 31, 1980--cont.
Obser- Week- Basis
vation Year Month day 180-2001b 200-2401b Week
--Dollars per cwt.--
451 80 8 22 35
452 00 8 29 -0088 -2.480 36
453 80 9 5 -0 08 -1 780 37
454 80 9 12 4.30 0.675 38
455 80 9 19 3.65 1.100 39
456 80 9 26 4.05 2.500 40
457 80 10 3 41
458 80 10 10 5:85 2.800 42
459 80 10 17 9.00 5.300 43
460 80 10 24 8.10 5.050 44
461 80 10 31 7.92 5.020 45
(18)
Table 2.--Approximate relationship between
and week within the month
week number and month,
Approximate Approximate
Week month and Week month and
number week number week
January 1
2
3
4
February 1
2
3
4
March 1
2
3
4
5
April 1
2
3
4
May 1
2
3
4
June 1
2
3
4
5
July 1
2
3
4
August 1
2
3
4
September 1
2
3
4
5
October 1
2
3
4
November 1
2
3
4
December 1
2
3
4
5
(19)
Table 3.--Weight ranges used in the reporting of 180-240
pound barrows and gilts at Live Oak, 1972-1980
Date
January 1, 1972-
May 10, 1974
May 17, 1974-
September 2, 1977
September 9, 1977-
August 18, 1978
August 25, 1977-
present
Source; [5],
Weight ranges
180-210 and 180-240
180-210 and 190-240
180-210 and 200-240
180-200 and 200-240
(20)
Table 4.--Average basis and standard deviation, 180-200 lb. barrows and gilts, and
200-240 lb. barrows and gilts in Florida, January 7, 1972-October 31, 1980
180-200 lb. barrows and gilts 200-240 lb. barrows and gilts
Week Basis Standard deviation Basis Standard deviation
------------------------Dollars per cwt.-------------------------
4.20
1.67
1.37
0.48
1.27
0.38
0.21
1.09
0.97
0.49
1.98
3.22
2.88
4.39
6.54
6.85
6.64
6.18
5.55
4.09
3.31
3.40
4.51
4.65
4.96
3.07
2.13
1.51
2.90
2.62
1.52
-1.45
-0.61
-0.91
0.84
0.47
1.11
1.93
1.68
3.19
2.50
3.18
3.01
3.40
3.64
3.82
4.15
2.31
0.70
1.95
0,79
4.53
3.29
3.10
3.69
4.26
3.66
2.67
2.24
1.90
2.47
2.20
2.22
2.57
2.30
3.00
3.28
2.81
2.02
2.06
2.04
3.35
2.78
2.47
1.95
1.84
2.78
1.73
2.68
1.82
1.98
3.15
3.39
2.49
1.19
2.53
1.83
1.29
1.97
2.57
2.74
2.54
2.64
3.61
3.37
2.98
2.50
3.25
3.78
4.18
4.39
3.61
0.39
(21)
2.55
0.32
0.14
-0.57
-0.70
-0.85
-1.25
-0.41
-0.42
-0.95
0.34
1.55
1.47
2.96
5.17
5.27
5.21
4.55
4.27
2.51
1.66
2.05
3.09
3.18
2.93
0.96
0.33
0.03
1.18
0.73
-0.77
-3.54
-2.58
-2.46
-1.10
-1.35
-0.89
-0.09
0.09
1.42
1.05
1.57
1.47
1.74
2.01
2.31
2.70
1.33
-0.74
0.59
-0.45
3.08
3.87
3.37
3.80
4.20
3.53
2.83
2.28
1.85
1.96
2.68
1.45
2.82
2.21
2.64
2.61
2.49
1.85
1.71
1.94
3.25
2.53
1.85
1.67
1.00
2.43
1.98
2.85
1.45
1.85
3.48
3.41
3.08
2.06
2.19
1.65
1.00
1.29
2.19
2.70
3.03
2.17
2.77
3.31
2.87
2.56
2.91
3.35
4.33
4.61
3.89
1.17
PLOT OF MI*WEEK SYMBOL USED IS +
PLOT CF UMI*WEEK SYMBOL USED IS *
PLOT OF LMI*WEEK SYMBOL USED IS .
Ml I
11 +
1
10 +*
*
9+
*
8+
7 *
**
*! *
6+
S* *
S* +
3
-* *
*
I *
3 + *
o 4* *
-4 +
I
-S I *
-5 *
1*
I
------------+---+--*------ ----------+-----+---+ ------+--- +---+--.--- ----..--. ---------+-. -----+.-----------
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Figure I.--Basis, barrows and gilts, 180-200 Ibs., Live Oak, Florida, 1972-1980.
Table 4.--Average basis and standard deviation, 180-200 lb. barrows and gilts, and
200-240 lb. barrows and gilts in Florida, January 7, 1972-October 31, 1980
180-200 lb. barrows and gilts 200-240 lb. barrows and gilts
Week Basis Standard deviation Basis Standard deviation
-----------------------Dollars per cwt.----------------------
1 4.20 ---- 2.55
2 1.67 3.29 0.32 3.87
3 1.37 3.10 0.14 3.37
4 0.48 3.69 -0.57 3.80
5 1.27 4.26 -0.70 4.20
6 0.38 3.66 -0.85 3.53
7 0.21 2.67 -1.25 2.83
8 1.09 2.24 -0.41 2.28
9 0.97 1.90 -0.42 1.85
10 0.49 2.47 -0.95 1.96
11 1.98 2.20 0.34 2.68
12 3.22 2.22 1.55 1.45
13 2.88 2.57 1.47 2.82
14 4.39 2.30 2.96 2.21
15 6.54 3.00 5.17 2.64
16 6.85 3.28 5.27 2.61
17 6.64 2.81 5.21 2.49
18 6.18 2.02 4.55 1.85
19 5.55 2.06 4.27 1.71
20 4.09 2.04 2.51 1.94
21 3.31 3.35 1.66 3.25
22 3.40 2.78 2.05 2.53
23 4.51 2.47 3.09 1.85
24 4.65 1.95 3.18 1.67
25 4.96 1.84 2.93 1.00
26 3.07 2.78 0.96 2.43
27 2.13 1.73 0.33 1.98
28 1.51 2.68 0.03 2.85
29 2.90 1.82 1.18 1.45
30 2.62 1.98 0.73 1.85
31 1.52 3.15 -0.77 3.48
32 -1.45 3.39 -3.54 3.41
33 -0.61 2.49 -2.58 3.08
34 -0.91 1.19 -2.46 2.06
35 0.84 2.53 -1.10 2.19
36 0.47 1.83 -1.35 1.65
37 1.11 1.29 -0.89 1.00
38 1.93 1.97 -0.09 1.29
39 1.68 2.57 0.09 2.19
40 3.19 2.74 1.42 2.70
41 2.50 2.54 1.05 3.03
42 3.18 2.64 1.57 2.17
43 3.01 3.61 1.47 2.77
44 3.40 3.37 1.74 3.31
45 3.64 2.98 2.01 2.87
46 3.82 2.50 2.31 2.56
47 4.15 3.25 2.70 2.91
48 2.31 3.78 1.33 3.35
49 0.70 4.18 -0.74 4.33
50 1.95 4.39 0.59 4.61
51 0,79 3.61 -0.45 3.89
52 4.53 0.39 3.08 1.17
(21)
-k-mJ/$) s/ t $ -
(23)
REFERENCES
[1] Chicago Mercantile Exchange, Futures Trading in Live Hogs, October,
1976.
[2] Chicago Mercantile Exchange, How to Make Livestock Futures Work For
You, July, 1977.
[3] Chicago Mercantile Exchange, Bibliography and Information Source
List, April, 1978.
[4] Chicago Mercantile Exchange, Yearbook, various years.
[5] Florida Department of Agriculture and Consumer Services, Florida
Livestock Market Report, weekly.
(24)
APPENDIX I DEFINITIONS
Hedging--Briefly stated, hedging is the sale of futures against
the physical commodity or its equivalent, as protec-
tion against a price decline; or the purchase of
futures against forward sales or anticipated require-
ments of the physical commodity, as protection against
a price advance.
Hog futures--Refers to a contract or price for hogs weighing between
200 and 230 pounds.
Basis--The spread or difference between a futures price and
the current spot or cash price. A nearby basis would
be the difference using the nearest futures contract
to maturity. Basis may also be used to designate
price differentials between cash and more distant
futures, as well as different locations as specified.
Closing basis--The difference between futures prices and local cash
prices on the day of sale.
Narrowing basis--The spread between futures and cash prices becomes
smaller over time.
Widening basis--The spread between futures and cash prices becomes
larger.
Selling a contract--Hog producers sell contract when they agree to deliver
a specified number of hogs per a contract based on a
price set by the futures market.
Buying a contract--Hog producers buy contracts back to offset or liquidate
their hedged position (short hedge position) in the
futures market. They then sell their hogs in the local
cash market.
Cash prices--Prices quoted on the cash or spot market.
Spot price--The price at which a physical commodity is selling at
a given time and place.
Futures prices--Prices quoted on the futures market.
Futures market--An organized exchange market in which contracts whose
fulfillment by delivery of goods is not required until
a specified time in the future.
Cash market--Prices quoted on the cash or spot market.
(25)
APPENDIX II CONTRACT SPECIFICATIONS
Live hog contract specifications call for delivery of 30,000 pounds
of USDA Grades No. 1, No. 2, No. 3, and No. 4 (barrows and gilts)
averaging in the weight range of 200-230 pounds. At least 90 hogs in
each delivery unit must fall within the 200 to 230 pound weight range.
Hogs under 190 pounds or over 240 pounds are not deliverable.
Delivery units containing hogs weighing under 200 pounds but not
less than 190 pounds and weighing over 230 pounds but not more than 240
pounds, are deliverable with an allowance of $0.50 a hundredweight based
on the weight of such hogs delivered [1].
Delivery units containing more than 90 head of USDA Grade No. 3 hogs
are deliverable at an allowance of $0.50 per hundredweight for the entire
delivery unit. Delivery units containing up to eight head for USDA Grade
No. 4 hogs shall be deliverable at an allowance of $2.00 per hundredweight
for each such hog. The weight of each shall be deemed to be the average
weight in the delivery unit. Units containing more than eight head of
Grade No. 4 shall not be deliverable.
Variations in total weight of a delivery unit not in excess of 30,000
pounds shall be allowed with appropriate adjustment to reflect the delivered
weight, but with no penalty.
The nearest delivery point in Florida is East St. Louis, Illinois
which has a discount of $0.50 percent to Chicago.
(26)
"AEBt261 4I
S4If J
AU6 4 198) AMt IQ
This publication promulgated at a cost of $1,040.00, or 52 cents per copy to inform Floridians about
the structure of the hog basis. 9-2M-81
COOPERATIVE EXTENSION SERVICE, UNIVERSITY OF FLORIDA, INSTITUTE OF FOOD AND AGRICULTURAL
SCIENCES, K. R. Tefertiller, director, In cooperation with the United States Department of Agriculture, publishes this Infor-
mation to further the purpose of the May 8 and June 30, 1914 Acts of Congress; and is authorized to provide research, educa-
tional Information and other services only to individuals and Institutions that function without regard to race, color, sex or
national origin. Single copies of Extension publications (excluding 4 -H and Youth publications) are available free to Florida
residents from County Extension Offices. Information on bulk rates or copies for out-of-state purchasers Is available from
C. M. Hinton, Publications Distribution Center, IFAS Building 664, University of Florida, Gainesvlle, Florida 32611. Before publicizing this
publication, editors should contact this address to determine availability.
HISTORIC NOTE
The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)
site maintained by the Florida
Cooperative Extension Service.
Copyright 2005, Board of Trustees, University
of Florida
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