The price of pork

What’s the price of hogs today? Such a simple question, but trying to find a true answer can be complex and misleading. It used to be (and I mean a long time ago) one could listen to the markets at noon coming from the Chicago Stockyards and the prices for hogs and cattle would be definitive. A central competitive market offered the opportunity for transparent price discovery. There were many bidders and a livestock farmer had at least a sense of security his product was sold at “fair price.”

That market as we fondly recall does not exist anymore. Concentration of the hog buying industry has made for fewer bidders, less competition, and very little negotiating. Amazingly only 8 percent of today’s hogs are bought on the spot market, with the vast majority procured with contractual arrangements based on that limited negotiated market. In other words, pork packers have to bid on very few hogs to meet their daily needs. Additionally, it has been challenging to find open and transparent reporting of that spot price so as producers we can find out what our product is really worth.

So how is it that we, as producers, entrust the selling of our hogs to this apparently biased system? With a concentrated and few number of hog packers in any one area (Tyson, Smithfield, Swift), there is little competition to outbid the “other guy.” You are offered a delivery date (possibly weeks in advance) and told they will be priced off the spot market that day; that is the previously mentioned “8 percent of the total market” spot price. We, as producers, commit the unpardonable sin in Marketing 101 by sending away our product without demanding and knowing its price. We “fold ‘em” without ever seeing the other guy’s hand! Would car shoppers ever commit to buying a vehicle two months down the road without knowing its price? I don’t think so! The hog packers, through concentration, have reduced producers’ options and thus have achieved tremendous leverage in the marketplace.

This issue has certainly become a “hot-button” concern with pork producers. A series of very important meetings are now being held across the country to address these and similar concerns. For the first time ever the Department of Justice and U.S. Department of Agriculture are conducting joint workshops on competitive issues in agriculture. The workshops will address “’dynamics of competition in agricultural markets, including buying power (monopoly) and vertical integration.” Additionally, the workshops will provide “an opportunity for farmers, ranchers, consumer groups, processors, agribusiness, and other interested parties to provide examples of anticompetitive conduct and to discuss any concerns about the application of the antitrust laws to the agricultural sectors.”