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US Swine Economics Report

by 5m Editor
20 January 2004, at 12:00am

Regular report by Ron Plain on the US Swine industry, this week looking at the decline in spot market sales.

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The number of hogs sold on the spot market continues to decline, albeit at a much slower rate than during the 1990s. In 2003, only 13.3% of barrows and gilts were classified as "negotiated" sales under USDA's mandatory price reporting system. That compares to 14.7% in 2002. Mandatory price reports cover about 94% of U.S. barrow and gilt slaughter. University of Missouri surveys indicate that 26% of barrows and gilts were sold on the spot market in 2000, 43% in 1997 and 62% in 1994.

The decline in spot market sales has been offset by steady growth in both packer-raised hogs and contract sales to packers.

Last year, packers raised 20.9% of U.S. barrows and gilts. This was up from 19.7% in calendar year 2002. Ten percent of packer-raised hogs were sold in 2003 to a different packer for slaughter. In 2002, 11.4% of packer-raised hogs were sold to a different packer.

Sales contracts accounted for 65.8% of producer sales of barrows and gilts under mandatory price reporting last year and 65.7% in 2002. USDA classifies contract sales into three categories. Last year, 39.15% of barrow and gilt sales were based on a formula contract tied to published hog or pork prices, 7.6% were sold on a contract tied to the Chicago Mercantile Exchange's lean hog futures contract and 19% were sold on another type of pricing contract.

The steady decline in spot market sales appears to be driven mostly by producers. Marketing contracts tend to offer producers both higher and more stable prices than does the spot market. Last year, the average base price for negotiated hogs was $52.00/cwt of carcass weight. The average base price for contract hogs was $52.83/cwt. Of USDA's three categories for contracts, the other purchase agreements (i.e. neither a formula based on swine or pork market prices nor tied to the futures market) had the highest base price: $55.35/cwt.

5m Editor