A National Pork Board analysis of USDA price data indicates fewer hogs were sold through the spot market in January 2008 than during previous years. However, the spot market continues to determine the price of about half the hogs in the United States.
Economics consultants Glenn Grimes, professor emeritus at the University of Missouri; Ron Plain, professor at the University of Missouri; and Steve R. Meyer, president of Paragon Economics — conducted the analysis by reviewing reports created by the Livestock Mandatory Reporting Act of 1999, which went into effect in 2001. The reports cover all but the smallest harvest facilities.
Annual studies since 1999 show the percent of hogs sold at negotiated prices has fallen to 9.2 percent in January 2008, from 35.8 percent for all of 1999. "If the rate of decline in the percentage of negotiated or spot-market hogs returns to the pre-2006/'07 rate, it will increase the urgency for the industry to find another form of price discovery for most of the contracts," Grimes said. "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."
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 46 percent of the hogs in the United States was directly determined by the negotiated market. "The true percent is higher, because a high number of packer-owned and packer-sold hogs are priced with a market formula," Grimes said.