Pork Producers Review Major Industry Changes

March 31, 2000

The National Pork Producers Council says the pending sale of Farmland Foods Inc.’s Dubuque, IA, packing plant to Smithfield Foods is only one example of major changes taking place in the pork industry. Hog ownership by packers and mandatory price discovery are others that are reviewed in a lengthy statement by NPPC.

"The changes are not limited to meat packers," says NPPC. "Changes are constantly occurring in pork production, processing, food service and retail." The statement continued that even prior to the Farmland-Smithfield announcement, the council had worked to ensure fair competition in the marketplace.

Mandatory livestock price "will provide more transparent market price information, more information about contract purchases by packers and a catalog of information regarding contracts being offered by packers," said Craig Jarolimek, a Forest River, ND, producer and NPPC president.

The legislation was designed to guarantee that the volume and terms of sale for domestic swine from the previous business day, grouped by purchase type, as well as slaughter numbers from the previous day, would be available to producers by 8 a.m. All federally inspected packing plants that slaughter 100,000 hogs or more per year would be required to report. Prices in the 8 a.m. report will also reflect all premiums, discounts and carcass merit adjustments. The program is expected to be operational by late summer.

Hog ownership by packers was studied at length by a Packer Control Task Force in 1999. NPPC says the task force reached a consensus that pursuing state or national legislation to prohibit packers from owning, operating, managing or financing captive supplies greater than 5% of annual slaughter by company, would be unworkable and potentially counter_productive for producers.

The task force concluded that such legislation could be circumvented rather easily and could have the effect of shifting the pork industry from state-to-state or even out of the country, according to NPPC.

Ways to improve the information flow between producers and packers were researched by a Price Discovery Task Force that was appointed in 1999. The producer task force looked at the mechanisms used to discover prices on a daily basis, how they are working or failing and what could be done to improve the mechanisms. The task force called for producers to negotiate the sale of a higher proportion of their hogs with multiple packers and to report the price to USDA.

"This has succeeded as more producers are reporting prices and they are frequently the highest_reported prices on a given day," according to Jon Caspers, a pork producer from Swaledale, IA, who chairs the industry’s Price Discovery Task Force.

Another initiative of the Price Discovery Task Force is to try to solve the recent basis problems faced by hedgers using the Chicago Mercantile Exchange (CME) futures contracts. CME presently offers contracts for seven months. Caspers says the volume of trading in the lean hog futures on the CME has increased significantly.

"The absence of certain trading months during the year, though, contributes to wide basis levels and reduces producers’ marketing choices during those months," said Caspers. NPPC will continue to work with CME to offer a lean hog futures contract for all 12 months of the year, he added.