I get questions all the time about USDA’s hog price reports. It is pretty amazing how the mandatory price reporting (MPR) law, which passed in 1999, created so many reports with so many numbers. As I will only scratch the surface with this column, here are a few characteristics of the reports that are important. The MPR reports can be found at marketnews.usda.gov/portal/lg by clicking on “swine,” and then on “direct swine reports.” Some examples from today are included.
A common question: “How are the reports related regarding geography?”
First, all prices are included in the national reports. There are national reports for both purchased swine and slaughtered swine (more on that later), but regional reports are published for only purchased swine. The country is split into two regions along the Mississippi River to create the Eastern and Western Corn Belt (ECB and WCB) reports. A subset of the prices in the Western Cornbelt Report is used for the Iowa-Minnesota Report.
What hogs are included in a given day’s report?
That depends on the data in question and the time of day. Again, there are two sets of data — purchased swine and slaughtered swine – for each day. Purchased swine includes the animals that are bought by packers on a given day. Slaughtered swine, as the name implies, includes the animals that are slaughtered on a given day. While there are some animals that are both purchased and slaughtered on the same day, the two groups are pretty much exclusive in today’s business, which requires scheduling a few days in advance.
Since the purchased swine have yet to be processed, packers do not know their carcass characteristics and, therefore, the premiums/discounts they will earn. So they know only the number of animals bought and the base prices paid for those animals. Therefore, the prices in the daily purchased swine reports are really “apples and oranges,” since packers’ base price and premium philosophies differ. Base price cannot be directly compared since they generally represent hogs of different levels of leanness and weights.
There is, however, one “net” price on the purchased swine reports – the animals bought on a liveweight basis. The quoted price is all that the seller will receive for those animals. It is presumably based on packers’ knowledge of the seller’s animals and includes both the base and premium/discount amounts converted to live weight. The live prices are not included in the total averages on the purchased swine reports since the price is a net price and USDA does not know how the hogs will yield. I guess this price is a tangerine and, while mixing apples and oranges is okay, you can’t mix in tangerines.
As the name implies, the slaughtered swine reports include the animals that are slaughtered on a given day. These reports contain far more data than do the purchased swine reports, since packers know much more about the animals, including base price, net price, liveweight, carcass weight, sort loss, backfat and loin muscle depth. USDA uses the carcass measurements to compute a standardized percent lean. Animals bought on a live weight basis are included in the slaughtered swine reports since packers know their weights and can convert the live price (which is a net price that includes any premiums or discounts) to a carcass price before reporting to USDA.
How do the reports relate to one another over time?
There are a couple of different aspects to the timing differences. First, the purchased swine reports look forward in time on a given day in that they represent animals bought that day, which will be slaughtered over the next few days. That time lag depends on the supply situation and has been pretty long in recent weeks due to larger-than-expected supplies. Conversely, a given day’s slaughtered swine report includes the animals slaughtered that day, which were purchased over the past two weeks. So the slaughtered swine reports look backwards at the market. When markets are rising, purchased swine base prices will be higher than slaughtered swine base prices. When markets are falling, the opposite will be true. Note, though, that I am comparing only base prices in that statement.
Finally, the purchased swine reports build on one another over time. The morning purchased swine reports include all of the animals reported to USDA as purchased before 9:30 a.m. The afternoon reports include all of the animals reported to USDA as purchased before 1:30 p.m. – including the animals that were in the morning report. The prior day purchased swine report that comes out the next morning, includes all of the animals purchased on the previous day. There is only one slaughtered swine report – the prior day national report – so it includes all animals slaughtered the previous day.
This building nature of the purchased swine reports implies that, if you use a purchased swine report as the basis for a marketing agreement formula, you should at least use the afternoon report and, preferably, the prior day report, since they involve far greater numbers of animals and are subsequently more difficult to manipulate by packers’ timing their purchases during the day.
I recommend that you steer clear of the purchased swine reports altogether because they include only base prices. This means that the average price can be influenced by which packers are in the market on a given day. That means the price can change even if the market does not change or vice versa.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com