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No negotiating in hog sales

Audrey Kittrell 07/06/2011 @ 1:44pm Editorial Intern for Successful Farming magazine and Agriculture Online

Hog prices, feed prices and world food prices are all climbing higher, making for a supply and demand tug-of-war between hog producers and consumers.  So how do you make the most profitable hog sale in the evolving market?  According to recent statistics, hog producers don’t believe it’s by negotiated price, and that is “worrisome” to Ron Plain, University of Missouri livestock economist.

The number of hogs sold by negotiated pricing is down to less than 5% of hogs, as reported in Plain’s recent industry analysis.  Prior to 1990, most hogs were sold on the spot market, with the packer and producer negotiating price shortly before slaughter.  When Plain’s former colleague Glen Grimes began the study in 2002, 13.8% of hogs were sold with negotiated pricing, and continued to dwindle, with 2010 reporting just 4.9% negotiated sales.

Plain reports that the Negotiated hog price is an important key in determining the price for four of the other sale categories: Market Formula, Other Market Formula, Other Purchase Agreement, and Packer Sold.  “It is not clear how much longer there will be sufficient numbers of Negotiated purchases to effectively represent the true supply and demand balance for hogs and thus be a sound basis for formula pricing other hogs,” he said.

If negotiated pricing becomes too minimal to be an effective determinate of the value of pork, Plain says the Mandatory Price Reporting Act of 2010, which requires packers to report the price and volume of wholesale pork cuts that they sell, will likely take over as the measure of pork value.

As fewer hogs are sold with negotiated prices every year, more hogs are sold that are considered packer owned.  In 2002, packer owned sales made up 16.4% of the hog market, and has climbed to 25.2% in 2010.  No other measure of identifying a value for hogs has made as rapid of an increase or decrease.

“I don’t blame producers from wanting to leave the hog industry.  The hog industry is one of the biggest dog and pony shows out there,” Hog Talk forum contributor, Blacksandfarmer, said.  “High grain prices keep farmers with land raising crops and not feeding $7 corn to the hogs.  If world, livestock and ethanol demand slows in the next ten years, we may see a 180 in the hog industry.  In all reality, the big guys in the hog industry may not like $7 corn, but it is creating a monopoly for them.”

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