The number of hogs on the spot market continues it’s downward spiral, dropping from 16.7 percent last year to 13.5 percent this year, says Glenn Grimes, University of Missouri agricultural economist.
The number of hogs on the spot market appeared to level off in 2001-2002, but the latest tumble shows the continuing trend of more hogs being sold under some type of contract or marketing arrangement.
“This year there was a larger drop than what has become the norm over the past couple years,” says Grimes. “Odds are high that the trend will continue, which brings up the question of what will the market use in the future?”
Grimes says the spot market could be a very small percentage of the total hogs sold and still be effective as a pricing too. Some experts feel the spot market could go as low as 5 percent of the hogs sold and still be effective.
Another option is to use the meat market, as a pricing option. However, the meat market is very thin, much like the spot market for hogs, says Grimes. To remedy the situation, mandatory price reports for pork would likely be required, says Grimes. Beef reports are mandatory, as well as the hog and cattle reports, so there is some precedent for mandatory pork reports.
The study also looks at the types of contracts producers are using, which have remained fairly unchanged, with swine market formula contracts remaining the most popular option. Here is a list of the negotiated hogs (sold on the spot market) and the most common marketing arrangements, according to the study.
Arrangement % of Marketings
Negotiated hogs 13.49
Swine/ Pork market formula 41.42
Other market formula 5.68
Other purchase agreement 19.22
Packer sold 2.18
Packer owned 18.01
Source Glenn Grimes, University of Missouri agricultural economist
Grimes says of the other purchase agreement category 77 percent were tied to feed costs and 23 percent were some kind of window contract. Of the other purchase agreements 61 percent have a ledger and 39 percent do not have a ledger.