Hogs sold through the spot market (daily-negotiated transactions) continue to spiral downward, according to a pork checkoff-funded study of Agriculture Department price data.
“The continued decline in the negotiated or spot market hogs increases the urgency for the industry to find another form of price discovery for most of the contracts,” says Glenn Grimes, professor emeritus, University of Missouri. “One possibility is to have mandatory price reporting of meat and tie the contracts to meat prices.”
The analysis was conducted by Grimes; Ron Plain, University of Missouri agricultural economics professor; and Steve Meyer, president of Paragon Economics, Adel, IA.
Data was collected from the Livestock Mandatory Reporting Act of 1999. Studies show the percent of hogs sold at negotiated prices has fallen from 35.8% for 1999 to 11.6% in January 2004. When hogs sold on the spot market are added to those purchased on hog or meat market formulas, the current study indicates that the negotiated market directly determined the price of at least 53% of U.S. hogs.
“The true percent is higher because a high number of packer-owned and packer-sold hogs are priced with a market formula,” remarks Plain.
“About 27.8% of the hogs in January 2004 were bought under some system that supposedly reduces price risk to producers,” says Meyer. “Some of the pricing systems do not actually affect the variance of price received by the producers. Only cash contracts usually tied to futures and contracts without ledgers reduce producers’ price risk. Other arrangements may or may not result in a realized average price that is different from the actual average negotiated price.
Mandatory price legislation requires packers to report percent lean, carcass weight, base price and net price for each type of marketing arrangement.