1. Commodity & Ingredient Hedging, LLC www.cihedging.com 312-596-7755 Commodity & Ingredient Hedging, LLC www.cihedging.com 312-596-7755 2015 PORK Management Conference Price Discovery & Mandatory Price Reporting

2. Copyright 2009 Commodity & Ingredient Hedging, LLC2 Hog Sales Negotiation Examples

3. Copyright 2009 Commodity & Ingredient Hedging, LLC3 Negotiation Examples 1.) Seller has a spot load of hogs to sell next Thursday. Buyer and seller agree to $78. No reference made to futures or USDA report Which category should it be reported in?

4. Copyright 2009 Commodity & Ingredient Hedging, LLC4 Negotiation Examples 2.)Seller has a spot load of hogs to sell next Thursday and notices that high end of WCB yesterday was $78 Seller asks for yesterdays WCB high. Buyer and seller agree to that, which is a known $78 at the time Which category should it be reported in?

5. Copyright 2009 Commodity & Ingredient Hedging, LLC5 Negotiation Examples 3.) Seller has a spot load of hogs to sell next Thursday and asks for $78. Buyer asks how seller got to that figure and seller mentions it was the high end of yesterdays WCB. Buyer justifies the price since it was printed in a USDA report. Buyer and seller agree on $78 Which category should it be reported in?

6. Copyright 2009 Commodity & Ingredient Hedging, LLC6 Negotiation Examples 4.) Buyer and seller agree to price a load of hogs for delivery next Thursday at that days PM WCB high. Price is not known Which category should it be reported in?

7. Copyright 2009 Commodity & Ingredient Hedging, LLC7 Negotiation Examples 5.) Seller notices that July hog futures settled at $78 and mentions to buyer that he would like to get the July futures close. Buyer justifies the price since it was a printed futures value. Buyer and seller agree to $78 Which category should it be reported in?

8. Copyright 2009 Commodity & Ingredient Hedging, LLC8

9. 9 2013 (3.42%) 2014 (3.20%)

10. Copyright 2009 Commodity & Ingredient Hedging, LLC10 HR 2051- Mandatory Price Reporting Act of 2015 NEGOTIATED FORMULA PURCHASE The term ‘negotiated formula purchase’ means a purchase of swine by a packer from a producer under which— (A) the pricing mechanism is a formula price for which the formula is determined by negotiation on a lot-by-lot basis; and (B) the swine are scheduled for delivery to the packer not later than 14 days after the date on which the formula is negotiated and swine are committed to the packer.’’

11. Copyright 2009 Commodity & Ingredient Hedging, LLC11 CME Lean Hog Index Calculation

12. Copyright 2009 Commodity & Ingredient Hedging, LLC12 CME Lean Hog Index Calculation CME Lean Hog Index is a two-day weighted average of average net prices for slaughtered barrows and gilts as reported by USDA in its National Daily Direct Hog Prior Day Report-Slaughtered Swine (USDA Report LM_HG201). The index calculation takes into account both negotiated hogs as well as swine or pork market formula hogs, and is calculated as follows: CME Lean Hog Index = 2-Day Combined Total Value 2-Day Combined Total Weight

13. Copyright 2009 Commodity & Ingredient Hedging, LLC13 CME Lean Hog Index Calculation

14. Copyright 2009 Commodity & Ingredient Hedging, LLC14 CME Lean Hog Index Calculation Correlation = 97%

15. Copyright 2009 Commodity & Ingredient Hedging, LLC15 CME Lean Hog Index Calculation Correlation = 99%

16. Copyright 2009 Commodity & Ingredient Hedging, LLC16 CME Lean Hog Index Calculation If the Negotiated Formula Purchase category is passed, the CME would likely need to include this column in the calculation since they would be coming out of the Swine or Pork Market Formula column.

17. Copyright 2009 Commodity & Ingredient Hedging, LLC17 Summary Percentage of negotiated hogs continues to decline Direct effect on contract hogs as well as CME futures When negotiating, referencing to a USDA value may push it to the swine or pork market column Adding the Negotiated Formula column will help Producers that feel they are negotiating pigs need to ensure they are being reported as negotiated Verify with Market News

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