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.


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