Agriculture Department price data suggests fewer hogs were sold through daily-negotiated transactions (the spot market) during January than in previous years, even though the prices of over half the hogs in the United States still are set by the spot market. Consultants for the pork checkoff did the analysis.
“If the rate of decline in the percentage of negotiated or spot market hogs returns to the pre-’04/’05 rate, it will increase the urgency for the industry to find another form of price discovery for most of the contracts,” remarks Glenn Grimes, professor emeritus at the University of Missouri. “However, the slowdown in the rate of decline in negotiated or spot purchase hogs gives us some hope that the number of negotiated hogs will stop at around 10% of total slaughter. If it does, we believe it will do a satisfactory job of representing the true supply and demand situation and can be used as the base price for market contracts.”
Annual studies show the percent of hogs sold on the spot market has fallen from 35.8% for 1999 to 10.2% in January 2006. By adding the percentage of hogs purchased in the negotiated market to the percentage purchased on hog or meat market formulas, the price of about 52% of U.S. hogs was directly determined by the negotiated market, according to the study.
“The true percentage is higher because a high number of packer-owned and packer-sold hogs are priced with a market formula,” notes Ron Plain, University of Missouri agricultural economist.