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No negotiating in hog sales

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.”

Read more on Hog Talk forums

The Mandatory Price Reporting system (MPR) requires covered
packers to report percent lean, carcass weight, base price, and net price for
most of the marketing categories. 
In 2010, Packer Owned carcasses had the lowest average percent lean
(53.56%), were average in weight, and had the highest base price and net price
compared to all other market categories.

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