Fewer hogs sold on spot market

US - USDA price data shows fewer hogs sold through the spot market during January 2006 than during previous years, although the prices of more than half the hogs in the United States still are determined by the spot market.

"If the rate of decline in the percentage of negotiated or spot market hogs returns to the pre-2004/'05 rate, it will increase the urgency for the industry to find another form of price discovery for most of the contracts," says 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 percent 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."

Grimes, Ron Plain, professor at the University of Missouri, and Steve R. Meyer, president of Paragon Economics, conducted the analysis on the USDA price data.

The data came from reports that were created by the Livestock Mandatory Reporting Act of 1999, which went into effect in 2001. It became voluntary after the law expired on Sept. 30, 2005. The reports cover all but the smallest harvest facilities.

Total hog slaughter under Federal Inspection in January 2006 was 8,030,370 head. USDA had data for 7,261,064 head (90.4 percent of federally inspected slaughter).

Annual studies since 1999 show the percent of hogs sold at negotiated prices has fallen from 35.8 percent for all of 1999 to 10.2 percent in January 2006.

By adding the percentage of hogs purchased in the negotiated markets to the percentage purchased on hog or meat market formulas, the current study indicates that the price of at least 52 percent of the hogs in the United States was directly determined by the negotiated market.

Source: AgProfessional
calendar icon 8 March 2006
clock icon 2 minute read
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