Walt Swier MFA Incorporated

Publish Date: June 3, 2006

In the past decade there has been a rapid movement by U.S. hog producers and packers away from selling and buying hogs on the spot market. The decline in spot market sales has been offset by a steady increase in both contractual agreements between producers and packers and in packers raising hogs for slaughter. There are a number of reasons why producers have switched to contracts from spot market sales. First, it simplifies life. It is far easier, especially for larger hog operations, to negotiate a multi-year packer contract than to negotiate the price of every load of hogs. It is easier to arrange and budget transportation when all the hogs go to the same plant. A marketing contract assures shackle space. Perhaps most important, marketing contracts can offer a higher and more stable net price than the spot market.