Production contracts are common practice in the pork industry today. USDA in its quarterly Hogs and Pigs Reports estimates that approximately 34 percent of U.S. market hogs are produced under contract by farms with at least 5,000 hogs marketed a year. Table 10a shows that more than one-third of farrowings are owned by producers that use contracts, as are 51 percent of market hogs.

However, less than half of the farrowings by these producers occur in contract facilities. The majority of their farrowings are in company-owned facilities. Finishing tends to be done more in contract facilities vs. contractor-owned buildings. Table 10a underestimates the total use of production contracts because it does not include contracting by medium-sized producers (1,000 to 49,999 hogs annually). Based on responses from contract growers we can determine the common types of production contracts in use today (Table 10b). Payment on a per-head basis that includes incentive payments is the most common type of contract (37 percent). Contracts using per-head payments without incentives accounted for 14 percent. The per-pound contract is more likely to have an incentive than not. However, there is little real difference in the share of contracts based on per-pig-space payments with or without incentives.