Fewer and fewer hogs are being sold on the cash, spot, or futures market, or with some marketing formula that allows a producer to manage price risk. Negotiated sales are nearly a thing of the past. And what does that trend predict for the future?

The price reporting mechanism of USDA is titled “Mandatory Price Reporting” but University of Missouri livestock economists Glenn Grimes and Ron Plain remind everyone that implementation details are incomplete and the system is just as voluntary now as it was in 2006 when the law was renewed. The MPR is the key to knowing the price at which hogs are sold in the US. And that system, as incomplete as it is, indicates that overtime hog marketing has moved nearly completely into a set price system at the outset of a contract. That is the conclusion of Grimes and Plain in their recently completed study of US Hog Marketing Contracts.

Despite incomplete data, the economists say their information can be reconciled with prior years, and for January they can track sale information on nearly 91% of the federally inspected hog slaughter, which approached 10.5 million head. During the past ten years, negotiated and spot sales of hogs dropped from 35.8% of hogs in 1999 to 9.2% this year. Non-negotiated sales accounted for 90.8% of hogs slaughtered in January. A similar survey in 1997 indicated only 56.6% of hogs were slaughtered following non-negotiated transactions, resulting from contracted production.

Grimes and Plain say 46% of hogs slaughtered in January could be considered as sold by negotiated markets if you combine both the spot sales and the percentage of hogs purchased on a swine-pork market formula. However, that percentage increases somewhat because that formula is also used for hogs owned by packers prior to slaughter.

When measuring the number of hogs sold under a system that “supposedly” reduces price risk to a producer, Grimes and Plain calculate that to be just under 25%. Some of the systems used to establish a payment to producers do not provide price risk protection, say Grimes and Plain. They say it is impossible to determine how many hogs are sold in which the actual production cost is disregarded by the contract, when the payment is made. Their 2004 study indicated that it was 71% of those agreements, and 29% of sales were made with the help of trackable production costs.

From 2006 to 2007, Grimes and Plain say the number of packer-sold hogs increased from 2.6% to 6.7% and held just above 6% in January, and they add, “We still believe the number of hogs sold on the spot market is sufficient to represent actual supply and demand conditions and result in a fairly accurate price for hogs. This belief is based on the fact that packers’ margins have not indicated that they are purchasing hogs at prices much, if any, below their value based on actual supply and demand conditions.”

The federal pricing laws also required reports on weight and carcass prices, and the economists report:
1) The negotiated price hogs had the second lowest average percent lean and the lightest average weight.
2) The other market formula hogs (contracts tied to futures market) had the highest average weight at 209.0 pounds.
3) The packer-owned hogs had the lowest percent lean.

Summary:
Although pork slaughter is at an all time high, a greater percentage of those hogs are being marketing with contracts that do less to protect producers from price risk. Less than 10% of hogs are sold on a cash or otherwise negotiated price arrangements. And less than 25% of hogs are sold with an arrangement that allows producers to manage any of their production risk, such as higher feed costs.