What is in this article?:
- Hog Producers Feeling Effects of Government Shutdown
- Three Points to Ponder
Three Points to Ponder
So what is happening in the meantime?
First, the rumors you have heard about an attempt to establish a temporary, voluntary reporting system are true. We don’t know yet when the effort might come to fruition but it is ongoing. To say the least, the idea is technically and legally complex.
Second, the practice of using the last available price quotes (ie. from Sept. 30) appears to be over. A number of packers had used those quotes last week, but quite understandably now feel those quotes are pretty stale relative to where true market values might be. I think that is especially true due to the time of year. Hog prices usually fall as hog supplies grow in October. Of course, we don’t know for sure that hog supplies grew last week since we have no slaughter data either! But it’s still a pretty safe bet.
Third, it appears that the most popular choices are, for now, the price of the nearby October CME Lean Hog futures contract and price data from Urner Barry, the long-time publisher of The Yellow Sheet. Tyson and Smithfield have announced they will use the Lean Hogs quote this week, and Cargill has announced it will use a quote from Urner Barry.
There aren’t many other options at present but the situation with the Lean Hogs demonstrates the quandary that everyone is in. The Lean Hogs futures contract has a couple of real strengths in a) being traded in an open, transparent, public market and b) being accessible to anyone who wants to basically bet money on what the cash hog price will be at a future date. The key future date in question, of course, is next Monday, Oct. 14 when the October contract expires.
But Tyson and Smithfield are using a futures price that is the consensus bet of what a cash price, that is not being published might be next Monday, when it still might not be published. It is tough to determine what the basis is when the futures price is determining the cash price. I’m not picking on Tyson and Smithfield here. They don’t have any real good options. I’m just saying that this is probably not a good, long-term solution, a fact that I think both companies acknowledge when they reportedly limited the practice to this week.
What does this say about government-sponsored price reporting? Not much good from a reliability standpoint but, again, what alternative is there? Private reporting is always suspect to some degree, and packers can hardly work together to do any reporting due to risks of running afoul of antitrust laws. A cooperative such as the beef industry’s CattleFAX can clearly work, but it takes time to build the necessary systems and reputation, and you must be recognized as a Capper-Volsted Act cooperative to have the antitrust immunity offered to cooperatives.
Bottom line: It’s not a good situation at all for hog producers. And it is not just hog data that are in peril. USDA announced this morning that it would not issue this week’s Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports. Nothing like driving blind, huh?