An analysis of USDA price data shows fewer hogs sold through daily negotiated transactions, or the spot market, during January 2004 than during previous years, although the prices of more than half the hogs in the United States still are determined by the spot market. Glenn Grimes, Ron Plain, University of Missouri agricultural economists and Steve Meyer, president of Paragon Economics conducted the Checkoff-funded analysis.
“The continued decline in the negotiated or spot market increases the urgency for the industry to find another form of price discovery for most of the contracts,” says Grimes. “One possibility is to have mandatory price reporting of meat and tie the contracts to meat prices.
Annual studies since 1999 show the percent of hogs sold at negotiated prices has fallen from 35.8 percent for all of 1999 to 11.6 percent in January 2004. 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 53 percent of the hogs in the United States was directly determined by the spot market.
“The true percentage is higher because a high number of packer-owned and packer-sold hogs are priced with a market sold formula,” says Plain.
More than a third of hogs were sold through a price-shifting arrangement, including 20.6 percent through other purchase arrangements and 7.2 percent on contracts tied to the futures market.