Earlier this week Iowa State Economist Don Hofstrand said the successful farming operation of the future would leverage information as much as you leverage capitol today. Information can frequently be more important than any other resource required on the farm. And information about open markets gives the producer the opportunity to make a choice about where and when a commodity will be sold. If there are advantages offered by location and time, then you want to sell your commodity at those locations at that time.

Grain producers will closely watch the local basis to know when it provides an advantage. Livestock producers can do the same, and University of Missouri livestock economists Glenn Grimes and Ron Plain have analyzed USDA’s mandatory hog price data for the past five years to develop a trend of where and when producers will likely have an advantage in selling hogs, compared to random deliveries.

After market information was forced into greater sunlight by the 1999 Price Reporting legislation approved in Congress, actual values could be more readily determined. The information has been published by USDA since 2001, and the Grimes and Plain research focused on 2002-2006 for hog markets.

Everyone knows that today’s electronic marketing allow commodities to be traded around the clock, so the clock was divided into several segments to determine what time of day offered better prices than other parts of the day. USDA’s market reports cover 70% of the federally inspected slaughter and include:
1) The Morning Report covers hogs purchased by packers between midnight and 9:30 a.m. by state.
2) The Afternoon Report covers hogs purchased between midnight and 1:30 p.m. by state
3) The Prior Day Report covers hogs purchased by packers between midnight and midnight by slaughter plant location.

In addition to the time reports, USDA broke the information down into geographic areas of: Eastern Corn Belt, Iowa-Minnesota, Western Corn Belt (which includes Iowa-Minnesota hogs) and National. Grimes and Plain found that afternoon prices were higher than morning prices with only a few exceptions during the five year period. “These positive differences existed in quarters when prices were trending downward as well as quarters with uptrending prices. Over the years 2002-2006, the average afternoon price has been roughly 28 cents higher than the morning average. We believe that the best explanation for the positive difference is that many marketing contracts are currently priced off the Morning Reports, thus creating an incentive for packers to delay aggressive bidding until after the Morning Report data have been submitted to USDA. Afternoon prices are then bid higher.”

The Missouri economists discovered the prices in the Prior Day report averaged 12¢ more than the afternoon price in the Western Cornbelt, but only 5¢ more than the Eastern Cornbelt.

For the last five years, the Prior Day Report price for the Western Cornbelt averaged 12 cents higher than the afternoon price in the Western Cornbelt. The difference in the Eastern Cornbelt was only 5 cents. They say the Prior Day prices should be the hardest to manipulate of all those in the Mandatory Price Reporting system. They also found, “The Iowa-Minnesota afternoon price averaged 71 cents higher than the Eastern Cornbelt, 35 cents higher than the National average, and 13 cents higher than the Western Corn Belt.”

The bottom line for setting contract values is:
1) Use the Afternoon or Prior Day reports to set your base price.
2) Avoid using the Eastern Cornbelt price as a base for packer contracts.
3) The Iowa-Minnesota and Western Cornbelt prices are comparable, and slightly more than the National price.

Summary:
If you are selling hogs or setting base values for production contracts, the Mandatory Price Reporting system may offer several alternatives. The highest prices are found in the Afternoon and Prior day reports, as well as the Iowa-Minnesota and Western Cornbelt geographic areas.