Most Hogs Sold on Prearranged Arrangements

March 10, 2000

A University of Missouri study shows nearly three out of four market hogs are sold under some type of prearranged marketing agreement. Of all hogs slaughtered in January, 74.3% were sold on some type of prearranged arrangement, not on cash price. That compares with 64.2% a year earlier.

The study, conducted on behalf of the National Pork Board and the National Pork Producers Council, included respondents who raise 77.8% of all market hogs slaughtered at federally inspected plants. Industry sources were used to estimate marketing methods used by firms not responding to the study for a total of about 91% of the total federally inspected slaughter in January.

Of all contracted hogs, the largest share, 47.2%, were sold using a formula price contract, according to Glenn Grimes, agricultural economist at the University of Missouri. A formula price contract sets a sale price according to some reported price and a formula established by a previous agreement between a producer and packer.

An example would be $1 per hundredweight above the Iowa_Southern Minnesota hot carcass price. In 1999, 44.2% were sold using a formula price contract. Grimes said formula contracts are the least advantageous of all contracts during low cash prices.

A marketing contract that is more advantageous with low cash hog prices is the fixed price tied to feed price without a ledger maintained. Such a contract was used on 3.3% of the hogs marketed in January. A ledger records a debit to the producer when the cash market price is below the contract price or credits a producer when the cash market price is greater than the agreed upon contract price.