HOW DO U.S. PIG PRODUCERS MARKET THEIR PRODUCT?

Producing a product and not knowing what price you will get for that product is risky business.　 This is the way most farmers have operated for many years.　 Now the system is changing for pig producers in the U.S.

In 1993, 87 percent of U.S. market pigs were sold in the cash market and 13 percent were contracted to pig processors (called packers).　 Now eight years later the above figures are nearly reversed.　 Figures show that for year 2001 pig producers have contracts with their packers for 71% of their pigs.　 This means only 29% or less will be sold to packers for a daily cash price.　 This means that contracts with packers are popular with producers and are probably here to stay.　 The contracts are variable but in general lock in a place to sell the pigs at reasonably good prices.　 The contract price is still determined partially by the daily cash price but most producers are satisfied with their contract price.　 Producers realize that contracts are new and the industry is experimenting on how they can best serve both packers and producers.

Another reason for the increase in pig contracts is that banks require a signed contract before they approve loans for most pig producers.　 It is easy to understand that this is a major force for increasing contracts.

(Parts of this article was published in Pork, July 2001, p 22-24)

COMMENTS BY DR. WHITMORE

U.S. dairy farmers are now just beginning to market part of their milk through signed contracts at a set price.　 Dairymen must know their cost of production.　 If the contract price is higher than the cost of production, then dairymen will sign a contract for part of their milk production.
I predict slow steady growth with milk contracts over the next ten years.　 Banks desire signed contracts that lock in a profit prior to making dairy loans.　 I have changed my thinking on contracts.　 I believe the contract price is often a little lower than the cash price.　 So in the long run we may be better off to go with the daily cash price.　 I still favor locking in a profit for 35% of our milk production if the contract price is high enough.