Hog Price Comparison Update - Ridgetown · Hog Price Comparison Update University of Guelph,...

Hog Price Comparison Update

Prepared for: The Ontario Pork Producers’ Marketing Board

Prepared by: Ken McEwan and Randy Duffy

University of Guelph, Ridgetown Campus

October 2006


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Executive Summary Hog pricing in the United States has changed rapidly in the last decade moving from personal negotiations where animals were sold on a live weight basis to the current situation of using marketing contracts and formula pricing on a carcass weight basis from a USDA released price series. There are many reasons why this change in pricing has occurred and they include: i) reduced transaction costs – the cost of negotiating a price and terms of trade for

every truckload of hogs produced can be significant; ii) supply and price assurance – many packing plants slaughter in excess of 16,000

hogs/day thus there is a need to ensure supply and stability in pricing; iii) reduce the amount of uncertainty and complexity - the U.S. industry has moved to

a more vertically coordinated system caused by the need for greater traceability, the need for more precise product specifications, and to incorporate technology such as 3 site production. The use of a formula price allows for large volumes of animals to be settled in an easy, defensible manner.

Hog prices in Canada are for the most part formula priced off the U.S. marketplace each day and adjusted to Canadian conditions. This method of developing an Ontario price has worked well given that there are few processors left in Ontario (i.e. Maple Leaf, Quality Meats, and Conestoga Meat Packers account for about 90% of Ontario’s slaughter capacity) and that both pigs and pork are traded across the border. Typical adjustments to the U.S. price include exchange rate, dressing %, index, and metric conversion. Currently, Ontario Pork uses the CME Constructed Price which is also referred to as the C201 Price as the reference price for it’s formula price. The C201 price is generated from the USDA’s 201 report which contains about 91% of the total U.S. federally inspected hog slaughter. The C201 price uses data from the two marketing categories of “negotiated” and “swine or pork market formula”.

From conducting this hog pricing study, the following comments can be made: i) The evidence presented in the various sections leaves little doubt that the C201 is

the best price series for Ontario to use when developing a base price. This price series remains accurate, reliable, and representative of hog prices paid by the large U.S. packers. While there are several other reports that could be used (e.g. ECB, WCB, IAMN, carcass Cutout), each one of these has the potential to suffer from time of day bias, regional bias, packer distortion or thin markets when compared to the C201 price. The participants in the 201 report (and therefore the C201 as well) are subject to public audit and the data is viewed as reflective of hog prices paid in the United States. These comments were received consistently from all information sources (i.e. the literature reviewed, USDA officials, academics, and industry representatives). The C201 price represents producer sold hogs for the Prior Day slaughter for the two marketing categories of “negotiated” and “swine or pork market formula”. These two marketing categories represent about 48 million hogs annually.


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Table E1 displays average carcass base prices, average net prices, and the premiums paid by pricing category in the 201 report for the 2002-2006 period.

Table E1. Base and Net Prices, 201 Report (Carcass Basis), 2002-2006

Purchase Arrangement Carcass Base Price Average Net Price Premium Negotiated 59.20 60.63 1.42

Swine or Pork Market Formula 58.78 61.53 2.75

Other Market Formula 56.54 59.53 2.98

Other Purchase Arrangement 60.09 61.90 1.81

Producer Sold (all types) 58.84 61.23 2.39

Packer Owned NA NA NA

Packer Sold (all types) 60.61 63.91 3.30

Constructed 201 (C201) 58.88 61.32 2.45

Source: USDA Note: period is January 2, 2002 – September 15, 2006. NA = not available; Premium = Average Net Price – Carcass Base Price.

The next best alternative to using the C201 price is the WCB (Western Corn Belt) or IAMN (Iowa-Minnesota) based price reports since that is the highest demand area and Ontario exports pigs to that region. The ECB (Eastern Corn Belt) based reports could be used since Ontario exports market hogs primarily to this region, however, these reports tend to have lower hog volumes associated with them.

ii) From reviewing various U.S. daily price series (i.e. WCB, ECB, IAMN, and

National) for the 2002-2006 period, it can be seen that there is a general trend towards higher prices as one moves from Morning to Afternoon to Prior Day purchases reports. This daily price change trend is prevalent for both the pricing categories of “negotiated” and “swine or pork market formula”. Therefore, the recommended report if the Morning, Afternoon, and Prior Day purchases reports are being compared is the Prior Day purchases report which has the highest prices and volumes.

iii) There are regional differences in prices and hog volumes depending on the price

series selected. For the pricing category of “negotiated”, the ranking of the various price series based on highest average weighted price to lowest is WCB, IAMN, National and then ECB. However, for the pricing category of “swine or pork market formula” the ranking based on highest average weighted price to lowest is ECB, National, WCB, and then IAMN.

When regional hog volumes are reviewed, the ranking of the regional price series from largest to smallest are as follows. For the pricing category of “negotiated” basis, the largest volume is National, followed by WCB, IAMN, and then ECB. When the pricing category of “swine pork market formula” is observed, the ranking from largest to smallest is National, WCB, IAMN, and ECB.


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iv) U.S. Cutout prices could be used but tend to be very thin volume reports while Canadian Cutout prices also suffer from thin volumes and low industry usage.

v) When weekly Ontario hog prices are compared to other provinces for the 2002-

2006 period, the ranking of highest average price to lowest is Quebec (Average Weighted Price) – $C148.32/ckg, Manitoba - $C148.08/ckg, followed by Ontario Standard Contract - $C147.25/ckg. It should be noted that this ranking does vary from week to week and year to year. On a weekly basis, the Ontario Standard Contract was higher than the Quebec AWP 43.5% of time and higher than the Manitoba price 42.2% of the time. Caution must be exercised when using the Manitoba price because it is unknown how it actually compares to what producers receive (i.e. the Manitoba price is a derived formula price, not what processors actually paid).

vi) When Ontario prices during the 2002 – 2006 period are compared to the weekly

Ontario 100% base formula price, prices are generally highest in 2002, start to decline in 2003 and 2004, and then increase in 2005 and 2006. In 2006, Ontario processors began offering new contracts at 101% of the formula price after having new contracts pegged at 100% of the formula price since the fall of 2003.

A possible reason for why Ontario prices decreased relative to the 100% base formula price is that Ontario marketings have exceeded Ontario slaughter capacity, thus Ontario is forced to export hogs to Quebec and the U.S.. Therefore, after accounting for transportation and other expenses related to exporting hogs outside Ontario, the net price received may be lower than prices for hogs sold to Ontario processors.

vii) Both producer and packer margins were estimated for the 2002 to 2006 time

period. It is estimated that hog producers averaged about $1.75/hog profit while processors lost $2.10/hog during the time period. Producers had a profit 55% of the time while processors had a profit about 40% of the time. Producers made profits in 2004 and 2005 while processors only made profits in 2002 and 2003 but have lost money since. However, producer margins tend to be more variable than estimated processor margins.

In conclusion, the USDA 201 report continues to be the best price report due to the large volume of hogs it records and the fact that actual slaughter cost and prices paid for hogs are reported. Ontario prices tend to be lowest when compared to Quebec and Manitoba during the 2002-2006 period. When producer and processor margins are estimated, producers have been more profitable (i.e. 55% of the time) than processors (i.e. 40% of the time) over the 2002–2006 time period however, producer margins are much more variable.

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Table of Contents

1.0 INTRODUCTION ...................................................................................................1 2.0 STUDY OBJECTIVES AND LIMITATIONS .......................................................3 3.0 HISTORICAL HOG PRICING IN ONTARIO.......................................................4 3.1 Pricing Before April 19, 1999......................................................................4 3.2 Pricing Between April 19, 1999 and April 12, 2002 ...................................4 3.3 Pricing Between April 15, 2002 and May 16, 2003 ....................................5 3.4 Pricing After May 19, 2003 .........................................................................5 3.5 Ontario/U.S. Hog Price Equivalency...........................................................7 3.6 Factors to Consider When Selecting a U.S. Price Report............................9 4.0 SELECTED LITERATURE REVIEW .................................................................15 4.1 Price Discovery in Concentrated Livestock Markets: Issues, Answers,

Future Directions (Purcell, Editor, 1997) ..................................................15 4.2 Livestock Price Discovery: Trends and Issues (Schroeder and Mintert, 1999) ............................................................................................16 4.3 Marketing Slaughter Hogs Under Contract, Pork Information Gateway

Factsheet PIG 11-03-01 (Plain and Grimes, 2004)....................................17 4.4 Analysis of USDA Mandatory Hog Price Data (Grimes and Plain, April 2005).................................................................................................19

4.5 Check-off Analysis of USDA Price Data (Grimes, Plain and Meyer, 2006)..............................................................................................20 4.6 Developing An Alternative Hog Pricing Scheme (McEwan, Duffy and DeVries, 1998)...........................................................................................22 4.7 Hog Price Comparison Update (Duffy, McEwan and O’Neil, 2000)........23 4.8 Literature Review Summary......................................................................23

5.0 TRAVEL NOTES FROM IOWA, WASHINGTON AND QUEBEC..................25 5.1 Iowa Trip....................................................................................................25

5.2 Washington Trip ........................................................................................27 5.3 Quebec Trip ...............................................................................................28

6.0 HOG PRICING ANALYSIS .................................................................................33 6.1 Introduction................................................................................................33 6.2 Summary of C201 Price Report .................................................................33 6.3 Comparison of 201 Report Prices With Other U.S. Hog and Pork Cutout Daily Prices, 2002-2006 ........................................................38

6.4 A Comparison of Hog Prices – C201 Report Versus Other USDA Reports .................................................................................42 6.5 Regional Price Spreads ..............................................................................45

6.6 Comparison of U.S. Hog Volumes by Regional Price Report...................48


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6.7 Comparison of Weekly Hog Prices Between Ontario and Other Provinces (2002 to 2006).................................................................50

6.8 Importance of Quebec Prices .....................................................................54 6.9 Ontario Hog Prices as a Percent of Base Formula Price............................56 6.10 Canadian Cutout Estimate and Spread Versus Ontario and Quebec Hog Prices.....................................................................................57 6.11 Estimated Cost of Production and Margins for Producers and Processors............................................................................................60 6.12 Summary of Analysis Section....................................................................63

7.0 SUMMARY AND CONCLUSIONS ....................................................................65

LIST OF APPENDICES Appendix One – Figures ....................................................................................................68 Appendix Two – Tables.....................................................................................................91 References ..................................................................................................................102


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List of Tables Table 1. Historical Summary of Pricing Formulas Used in Ontario................................7 Table 2. Market Hog Average Values by Marketing Arrangement, 2003.....................18 Table 3. Average Negotiated Prices, 2003.....................................................................19 Table 4. Percent of U.S. Hogs Sold Through Various Pricing Methods, 1999-2006 ....21 Table 5. Hog Marketing Arrangements Averages, January 2006..................................21 Table 6. Strengths and Weaknesses of Various Pricing Options...................................22 Table 7. Volume of U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006 ......................................................................................................34 Table 8. Percent of U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006 ......................................................................................................35 Table 9. Base Carcass Price ($US/cwt) of U.S. Hogs Sold Through Various Pricing Categories, 2002-2006 .....................................................................................35 Table 10. Net Carcass Price ($US/cwt) of U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006 ...................................................................................36 Table 11. Premiums ($US/cwt) on U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006.......................................................................36 Table 12. Percent Lean of U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006 ......................................................................................................37 Table 13. Carcass Weight (lbs) of U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006 ...................................................................................37 Table 14. Estimated Dress % U.S. Hogs Sold Through Various Pricing Categories, 2002 - 2006 ...................................................................................38 Table 15. USDA Hog Price Reports by Region and Report Number..............................39 Table 16. Negotiated Weighted Average Prices (Carcass Basis) ....................................40 Table 17. Swine/Pork Market Formula Weighted Average Prices (Carcass Basis) ........41 Table 18. National Cost (213 report) and Cutout Prices (Carcass Basis) ........................41 Table 19. Price Spreads, C201 Prices Versus Various Regional Negotiated Weighted Average Prices (Carcass Basis) .......................................................................42 Table 20. Price Spreads, C201 Prices Versus Various Regional Swine or Pork Market

Formula Weighted Average Prices (Carcass Basis) ........................................43 Table 21. Price Spreads, A Comparison of C201 and 201 Prices (Carcass Basis) .........43 Table 22. Price Spreads, C201 Prices Versus National Cost and Cutout Prices (Carcass Basis).................................................................................................44 Table 23. Price Spreads Using Negotiated Weighted Average Prices (Carcass Basis) ...46 Table 24. Price Spreads Using Swine/Pork Market Formula Weighted Average Prices (Carcass Basis) ......................................................................................46 Table 25. Annual Price Spreads Between Cutout Values and the Price Series of C201 and National Cost (Carcass Basis) ..........................................47 Table 26. Negotiated Daily Hog Volumes (Carcass Basis) .............................................48 Table 27. Swine or Pork Market Formula Daily Hog Volumes (Carcass Basis).............48 Table 28. Daily Hog Volume, 201 Report (Carcass Basis) .............................................49 Table 29. Canadian Weekly Price Comparison, 2002-2006 ...........................................51


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Table 30. Canadian Weekly Price Comparison, 2002-2006............................................52 Table 31. Canadian Weekly Price Spread Comparison Versus Ontario Standard

Contract, 2002-2006 ........................................................................................53 Table 32. Canadian Weekly Price Spread Comparison Versus Ontario Standard Contract Performed on a Yearly Basis, 2002 – 2006 ......................................54 Table 33. Quebec Weekly Price Comparison, 2002-2006...............................................55 Table 34. Weekly Price Comparison Versus Ontario 100% Formula Price, 2002 - 2006 ......................................................................................................56 Table 35. Weekly Canadian Cutout Estimate, 2002-2006...............................................58 Table 36. Weekly Spread Comparison Versus Canadian Cutout, 2002 - 2006 .....................................................................................................59 Table 37. Weekly Margin Comparison, Producer Versus Processor, 2002 – 2006 .....................................................................................................62

List of Figures Figure 1 Canadian Exports of Slaughter Barrows/Gilts to U.S. by Region, 2004-2005 ........................................................................................................10 Figure 2 Canadian Exports of Feeder Pigs to U.S. by Region, 2004-2005....................11 Figure 3 Ontario Exports of Live Swine >50 kg For Slaughter to U.S. by State, 2002-2005 ........................................................................................................12 Figure 4 Ontario Exports of Live Swine <7 kg to U.S. by State, 2004-2005 ................13 Figure 5 Ontario Exports of Live Swine 7 to 23 kg to U.S. by State, 2004-2005..........13 Figure 6 Ontario Exports of Live Swine 23 to 50 kg to U.S. by State, 2004-2005........14 Figure 7 Weekly Ontario Hog Marketings and Slaughter, 2002-2006 ..........................55 Figure 8 Producer/Processor Estimated Margins, 2002-2006........................................63

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Hog Price Comparison Update 1.0 INTRODUCTION

Hog prices in Ontario are formula priced off the U.S. marketplace. Each day the USDA publishes a report called “National Daily Direct Hog Prior Day Report – Slaughtered Swine” (i.e. lm_hg201 or 201 report) and the prices in this report are adjusted to Ontario conditions to derive an Ontario base price. Adjustments made to the 201 report account for differences in exchange rate, dressing %, index, and metric conversion. The 201 report contains about 91% of the total U.S. federally inspected hog slaughter which is approximately 90 to 94 million hogs annually. This method of developing an Ontario price has worked well given that there are few processors left in Ontario and that both pigs and pork are traded across the border. However, there are weaknesses to this method of price determination. Some of these shortcomings include: not representative of Canadian/Ontario supply and demand conditions; may be geographically biased; may not be reflective of true U.S. prices paid; doesn’t incorporate consumer prices paid; and there are always concerns over packer influence and bias. Recall, that in the U.S. the top 5 hog packer/processors (i.e. Smithfield, Tyson, Swift, Excel, and Hormel) would have about 72% industry market share with Smithfield handling approximately 27% of the U.S. annual hog volume or 100,300/day. In terms of hog volumes, the total U.S. federal slaughter has been increasing by about 1 million per year over the last 5 years peaking at the 2005 level of 102,501,065 head. Recent trends in U.S. hog pricing are fewer animals being sold on a “negotiated” basis, an increasing volume owned by vertically integrated packers (e.g. Smithfield), and a slight decrease in the number of hogs being sold in the pricing category “swine or pork market formula”. At the production level, the 20 largest firms would account for about 2.6 million sows or close to 42% of the entire U.S. inventory. Despite this industry consolidation, the majority of hogs are still considered producer sold at about 72 to 73 million annually. Currently, Ontario Pork uses the Chicago Mercantile Exchange (CME) Constructed Price (based on the USDA’s lm_hg201 report) as the reference price for it’s formula price. This reference price is also referred to as the C201 price. The C201 price uses data from the two marketing categories of “negotiated” and “swine or pork market formula” from the 201 report. Relevant questions to this project include: “Is this price still a reasonable and relevant price to use?”; and “Are there any other price options that could be used to determine the market hog price in Ontario?”.



The primary goal of this study is to ensure that the U.S. formula pricing series used by Ontario Pork to determine an Ontario base price is representative of the U.S. marketplace. Price series from the National, Western Corn Belt (WCB), Iowa-Minnesota (IAMN) and Eastern Corn Belt (ECB) regions of the U.S. will be analyzed. As well, Canadian prices for Ontario, Quebec and Manitoba will be compared.



2.0 STUDY OBJECTIVES AND LIMITATIONS

The main objective of this project is to assess and compare various market hog pricing series used in the North American market. Specific objectives are:

i) Review existing and alternative price series that either are being used or

could be used by Canadian and U.S. processors. This will take considerable analysis since there are many different pricing series in the U.S.. These series range from use of the Chicago futures market (included in the “other market formula” pricing category in several USDA reports) to hogs being sold using a formula based on the meat or Cutout values. Much of the variance in pricing method used depends on geographic location, packing plant used, and individual producer/packer preference.

ii) Analyze each one of these different pricing series using the main criteria

of tracking ability to historical C201 prices (and therefore Ontario prices) and reflection of prices actually paid by U.S. processors for hogs.

iii) Determine the advantages and disadvantages for each pricing series

analyzed. Is there opportunity for poor price reporting by the U.S. packers?

iv) Recommendations will be provided to Ontario Pork in terms of possible

changes or updates required to make sure the existing pricing mechanism accurately reflects hog prices paid in the North American market.

There are several limitations to this study and they include: i) The Canadian Cutout values, hog/Cutout spreads, and profitability

margins are estimates based on industry standards which may or may not reflect true producer/packer margins. Similarly, the same is true for the values used for byproduct revenue and processing costs.

ii) The price comparisons are not exactly apples to apples due to different %

leans associated with prices or different time periods used (i.e. “swine or pork market formula” carcass prices have a shorter time period and fewer observations than “negotiated” prices).

iii) Some price reports (e.g. USDA National Carlot Pork Report which is also

known as the 500 report or Cutout report, which contains prices for primal cuts) have thin product volumes for many of the pork cuts reported (i.e. often the price reports capture only 2-5% of the total commodity volume).



3.0 HISTORICAL HOG PRICING IN ONTARIO

Below is a brief summary of the various formulas used to set the base hog price in Ontario over the last few years.

3.1 Pricing Before April 19, 1999

Prior to April 19, 1999, Ontario Pork used the Indiana/Ohio and Illinois Direct live hog price reports as the U.S. reference price for it’s formula. The average of the practical tops from the two reports was used and incorporated into the following formula:

• average of the practical tops for the Indiana/Illinois price reports x Canada/U.S. Exchange Rate x 2.2046 / 0.8 / 1.057.

Where:

• Exchange Rate = Bank of Canada daily noon Canadian/U.S. exchange rate • 2.2046 = metric conversion factor from pounds to kilograms • 0.8 = average Ontario dressing % (i.e. 80%) • 1.057 = average Ontario index

This generated an Ontario price in C$/100 kg dressed for an index 100 market hog. It was thought at the time that the Indiana/Illinois reports represented hogs that were about 47-48% lean. The Indiana/Illinois price series was chosen because nearby U.S. packers (e.g. Thorn Apple Valley that used to operate out of Detroit and is now closed) were using this price series.

3.2 Pricing Between April 19, 1999 and April 12, 2002

Effective April 19, 1999, Ontario Pork switched to using the National Base Lean Hog Carcass Slaughter Cost Report’s 51-52% lean price as it’s U.S. reference price (nw_ls295 report or 295 report). This report was also referred to as the “National Cost Report” and “3 Area Report” since it contained the Mid South, Eastern Corn Belt and Western Corn Belt prices. The new Ontario formula calculation became:

• National Cost 51-52% price x 0.74 x Exchange Rate x 2.2046 / 0.8 / 1.1195.

Where:

• 0.74 = average U.S. dressing % (i.e. 74%) • Exchange rate = Bank of Canada daily noon rate/U.S exchange rate • 2.2046 = conversion factor from pounds to kilograms • 0.8 = average Ontario dressing % (i.e. 80%)



• 1.1195 = divisor The U.S. dressing percentage figure of 0.74 was added to the formula to convert the new lean price to a live price equivalent. The dressing percentage is different between Canada and the U.S. because in Canada the carcass has the leaf lard and head attached whereas in the U.S. these items are removed. The 1.1195 divisor replaced the previous 1.057 index divisor because 1.1195 made the new formula price calculation revenue neutral (i.e. the same) when compared with the old formula price using the Indiana/Illinois live prices. The time period used for this analysis was approximately November 1, 1995 to March 9, 1999. Mandatory Price Reporting by the USDA came along in 2001 and brought some changes to several price reports. The nw_ls295 report was supposed to end and be replaced by the new Mandatory Price Reporting lm_hg213 report (National Daily Base Lean Hog Carcass Slaughter Cost Report or 213 report). This new report started on April 2, 2001. Initially though, there were technical difficulties and prices weren’t reported until Monday, December 3, 2001 (i.e. the prices released were for the previous day which meant they were for Friday November 30, 2001). In the interim, Ontario Pork continued to use the nw_ls295 report until the new lm_hg213 figures were reported.

3.3 Pricing Between April 15, 2002 and May 16, 2003

Effective April 15, 2002, Ontario Pork began using the lm_hg213 report. The Ontario formula calculation became:

• (213 National Cost 51-52% price + 0.60) x 0.74 x Exchange Rate x 2.2046 / 0.8 / 1.1195.

Where:

• $U.S. 0.60/cwt lean was added to the initial 51-52% price The $0.60 figure was added to the formula because analysis showed the 295 report to be approximately $0.60/cwt lean higher than the 213 report when comparing prices for 51-52% lean hogs. This factor was intended to make the formula revenue neutral to the previous price series used (i.e. the 295 report). The time period used for this analysis was approximately December 3, 2001 to April 12, 2002.

3.4 Pricing After May 19, 2003

Effective May 19, 2003, Ontario Pork began using Mandatory Price Reporting lm_hg201 report (i.e. National Daily Direct Hog Prior Day Report – Slaughtered Swine) as it’s U.S. reference price report. USDA initially started this report on April 2, 2001 but again, there were initial technical difficulties and figures started



to be reported on Monday August 6, 2001 (i.e. for Friday August 3, 2001). One reason Ontario Pork began using this report was because the Chicago Mercantile Exchange was using this report (i.e. starting approximately February 17, 2003) to calculate it’s cash-settled “lean hog index”, starting with the April 2003 future contracts. This “lean hog index” is a two-day weighted average of the C201 price. The C201 calculation uses the weighted average of “negotiated” and “swine or pork market formula” hog prices along with head count, average net price (i.e. this includes premiums/discounts) and dress weight. The % lean for the C201 price fluctuates daily so it is not directly comparable to the 51-52% price in the 213 report that was previously used. The actual calculation of the C201 price is as follows:

• (N Head Count x N Average Net Price x N Average Carcass Weight + SPMF Head Count x SPMF Average Net Price x SPMF Average Carcass Weight) / (N Head Count x N Average Carcass Weight + SPMF Head Count x SPMF Average Carcass Weight).

Where:

• N = negotiated • SPMF = swine or pork market formula

Using the C201 report, the Ontario formula calculation became as follows:

• (C201 price - $0.56) x 0.74 x exchange rate x 2.2046 / 0.8 / 1.1195. Where:

• $U.S. 0.56/cwt lean is subtracted from the initial C201 price. The $0.56 figure was added to the formula because analysis showed the 213 report price to be approximately $0.56/cwt lean lower than the C201 price when comparing prices over the approximate time period of December 3, 2001 to May 16, 2003. This again was intended to make the formula revenue neutral. Table 1 below is a summary of the key points from the discussion regarding historical Ontario hog pricing formulas.



Table 1. Historical Summary of Pricing Formulas Used in Ontario

Time Period USDA Report Adjustments Based on Analysis Prior to April 19, 1999

Indiana-Ohio/Illinois Direct Live Hogs #2 Practical Tops approx 47-48% lean

1.057 (divisor)

April 19, 1999-April 12, 2002

295 51-52% lean

74% (dress %) 1.1195 (divisor)

November 1, 1995 – March 9, 1999

April 15, 2002-May 16, 2003

213 51-52% lean

+$0.60 74% (dress %) 1.1195 (divisor)

December 3, 2001 – April 12, 2002

May 19, 2003-present

201 CME Constructed (C201) Floating lean %

-$0.56 74% (dress %) 1.1195 (divisor)

December 3, 2001 – May 16, 2003

3.5 Ontario/U.S. Hog Price Equivalency

During the 1990’s, there was much debate about the Ontario formula and why U.S. price equivalency was important to producers. The main argument given for wanting U.S. equivalency was that North American pork is priced as a commodity that is traded freely across the Canada/U.S. border. Therefore, why would hog pricing not be similar? In general, this logic seems to make sense because pork production is relatively mobile that tends to shift to the more profitable region. If hog prices were not similar, then one region would contract while the other expanded. To estimate equivalency, several factors must be considered and they include differences in dressing percentage, who pays for transportation, and the index divisor used. As mentioned previously, in Canada the dressing percentage is estimated to be 80% because the head and leaf lard are left on the animal whereas in the U.S. the country point dressing percentage is 74% while the plant delivered one is 75%. The difference in dressing percent between country point and the plant is shrink (i.e. emptying the gut and etc.) resulting in leaner hogs at the plant. The transportation advantage occurs because Ontario processors pay hog freight FOB (i.e. Freight on Board) Harriston to the plant, rather than FOB plant as in the U.S.. The benefit to having Ontario processors pay for transportation is estimated to be about $2.50/hog. Below is the methodology used to estimate U.S. equivalency in May 1999. i) Begin with the National Cost 51-52% price (i.e. 1.0000 – a measure of the

relative closeness to U.S. equivalency) ii) Divide by Ontario Divisor of 1.1195 (0.8933 of U.S. price equivalency) iii) Multiply by Ontario Index of 1.08 (0.9647 of U.S. price equivalency) iv) Multiply by Ontario Contract Price Adjustment of about 1.025 (0.9888)



v) Multiply by Ontario Transportation Advantage of 1.0108 (0.9995) • Ontario processors pay approximately $2.50/hog • adjust for difference in dressing % between country point and plant

delivered (i.e. base price uses 74% instead of 75%). Therefore the economic loss is 1% difference of $120 hog value = -$1.20.

• thus, the net impact for transportation and dressing % is $2.50-$1.20 = $1.30/hog or 1.0833% (i.e. $1.30/$120 hog value)

vi) Multiply by Ontario Grid Premium of 1.0083 (1.0078 of U.S. price)

• this is based on the assumption that Ontario processors provide $1.00/hog premium in grids and the impact is calculated as $1.00/$120 hog value = 0.8333%

As one can see, after completing the above calculations the net result is a value that is approximately 100.78% of the National Cost 51-52% Lean Hog Price. To estimate U.S. equivalency in April 2006 the following steps had to be taken: i) Begin with the C201 Price – $0.56 (1.0000) ii) Divide by Ontario Divisor of 1.1195 (0.8933) iii) Multiply by Ontario Index of 1.08 (0.9647) iv) Multiply by Ontario Contract Price Adjustment of 1.000 (0.9647) v) Multiply by Ontario Transportation Advantage of 1.0108 (0.9751)

• Ontario processors pay approximately $2.50/hog • adjust for difference in dressing % between country point and plant

delivered (i.e. base price uses 74% instead of 75%). Therefore, the economic loss is -$1.20 or 1% on a hog valued at $120.

• the net impact for transportation and dressing percentage is $2.50-$1.20 = $1.30/hog or 1.0833% (i.e. $1.30/$120 hog value)

vi) Multiply by Ontario Grid Premium of 1.0083 (0.9832) • this is based on the assumption that Ontario processors provide

$1.00/hog premium in grids (i.e. % = $1.00/$120 hog value = 0.8333%)

Therefore, the net result is a value that is approximately 98.32% of the C201 price less $0.56/cwt. Below are some different scenarios that illustrate the impact of changing the hog value and index when determining U.S. price equivalency. i) Scenario One (using above assumptions and calculations for U.S.

equivalency in April 2006) • if the Ontario Index is changed from 1.08 to 1.09, then the net result is

approximately 99.23% of the U.S. price. • if the hog value is changed from $120 to $150, then the net result is

approximately 97.77% of the U.S. price.



• if the Ontario Index is changed from 1.08 to 1.09, and the hog value is changed from $120 to $150, then the net result is approximately 98.67% of the U.S. price.

ii) Scenario Two (Ontario contract price is increased from 100% to 101% of

base price) • recently the two main Ontario packers (i.e. Quality Meat Packers and

Maple Leaf Foods) have been offering contracts at 101% of the base formula as of May 2006. The net impact of this change based on a 1.08 hog index and a hog value of $120 is approximately 99.31% of the U.S. price.

iii) Other Scenarios (using assumptions in Scenario Two)

• if the Ontario Index is changed from 1.08 to 1.09, then the net result is approximately 100.23% of the U.S. price.

• if the hog value is changed from $120 to $150, then the net result is approximately 98.75% of the U.S. price.

• if the Ontario Index is changed from 1.08 to 1.09 and the hog value is changed from $120 to $150, then the net result is approximately 99.66% of the U.S. price.

3.6 Factors to Consider When Selecting a U.S. Price Report

Things to consider when selecting a U.S. price report include: geographical proximity; relevancy to Ontario and Canadian market; size of the market; whether it is representative of U.S./North America; if it is used by industry; perceived validity of the prices contained in a report; and etc.. Within the U.S., there are four geographic regions when hog prices are discussed. The geographic regions are ECB, WCB, IAMN (which is a subset of the WCB), and National (which comprises all of the WCB, IAMN, and ECB regions). Regarding the issue of relevancy to Ontario and Canadian markets, Figure 1 shows Canadian exports of slaughter barrows and gilts to the U.S. by region for 2004-05. The majority of exports go to two regions in the U.S.. The largest number of exports go to Region 8 which includes Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming. Region 5 which encompasses Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin takes the next highest amount of exports. Region 8 would fall into the area covered by the WCB hog price reports while Region 5 includes states in the WCB and ECB price reports.



Canadian Exports of Slaughter Barrows/Gilts to U.S. by Region, 2004-2005

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000H

ead

2004 864 375 184,121 234,778 624,512 1,216 229,197 759,531 223,768 185,368

2005 1,588 2,625 198,636 254,451 593,077 9,456 191,400 754,853 166,997 144,766

Region 1 - CT, ME, NH, VT, MA, RI

Region 2 - NY, NJ

Region 3 - DE-MD, PA,

WV, VA

Region 4 - AL, FL, GA, KY, MS, NC,

Region 5 - IL, IN, MI,

MN, OH, WI

Region 6 - AR, LA, NM,

OK, TX

Region 7 - IA, KS, MO,

NE

Region 8 - CO, MT,

ND, SD, UT,

Region 9 - AZ, CA, HI,

NV

Region 10 - ID, OR, WA

Figure 1

Figure 2 shows Canadian exports of feeder pigs to the U.S. by region for 2004-05. Region 7 (Iowa, Kansas, Missouri and Nebraska) and Region 5 (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) are the two destinations where most of the feeder pig exports end up. Region 7 is covered by the WCB and IAMN hog price reports while Region 5, as mentioned previously, includes states in both the WCB and ECB regions.



Canadian Exports of Feeder Pigs to U.S. by Region, 2004-2005

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000H

ead

2004 6,063 2,948 27,181 27,139 1,924,637 - 3,320,473 208,778 11,331 27,543

2005 4,215 2,978 28,515 4,000 1,775,603 31,544 2,951,312 336,482 13,908 19,883

Region 1 - CT, ME,

NH, VT, MA,

Region 2 - NY, NJ

Region 3 - DE-MD, PA,

WV, VA

Region 4 - AL, FL, GA,

KY, MS,

Region 5 - IL, IN, MI,

MN, OH, WI

Region 6 - AR, LA, NM,

OK, TX

Region 7 - IA, KS, MO,

NE

Region 8 - CO, MT,

ND, SD, UT,

Region 9 - AZ, CA, HI,

NV

Region 10 - ID, OR, WA

Figure 2

Figures 3 to 6 show Ontario exports of live pigs to the U.S. by state for various weight categories. These figures highlight the state destinations that are most important and relevant to the Ontario market since these states are the main U.S. buyers of Ontario pigs. Figure 3 displays Ontario exports of pigs greater than 50 kg for slaughter to the U.S. for 2002-2005. Kentucky, Indiana, Pennsylvania, and Illinois are the top four state destinations for Ontario market hogs the past couple of years. All these states are in the ECB region. It is interesting to note that shipments to Kentucky, Pennsylvania and Illinois have been increasing over time while those to Indiana and Iowa show less consistency.



Ontario Exports of Live Swine > 50 kg For Slaughter to U.S. by State, 2002-2005

0

50,000

100,000

150,000

200,000

250,000

300,000

Hea

d

2002 71,743 73,678 43,740 78,423 65,567 29,101 13,399 33,142 12,064 9,114

2003 126,086 189,903 81,847 62,548 59,703 85,596 36,846 18,842 8,910 14,188

2004 198,361 291,915 165,642 95,993 53,514 69,227 44,500 18,433 12,722 32,929

2005 219,453 219,351 175,876 111,727 67,372 38,135 29,025 28,207 7,993 8,961

Kentucky Indiana Pennsylvania Illinois Tennessee Iowa Ohio Michigan Wisconsin All Others

Figure 3

Figures 4, 5 and 6 show Ontario exports of feeder pigs to the U.S. for various weight categories (less than 7 kg, 7 to 23 kg, 23 to 50 kg) for 2004-05. For all three weight categories, Iowa and Minnesota are the top two states for the feeder pig exports. These states are covered in both the WCB and IAMN regions.



Ontario Exports of Live Swine < 7 kg to U.S. by State, 2004-2005

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Hea

d

2004 803,148 133,860 59,733 13,551 40,880 16,988 50,265 5,273 1,000 30,955

2005 159,983 127,333 86,347 37,265 31,284 17,708 12,290 8,782 4,550 6,045

Iowa Minnesota Illinois Michigan Indiana Nebraska Ohio Penn. Wisconsin All Others

Ontario Exports of Live Swine 7 to 23 kg to U.S. by State, 2004-2005

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Hea

d

2004 90,156 59,296 33,108 9,555 11,461 10,623 9,545 5,852 2,075 12,146

2005 69,773 28,910 25,500 14,425 13,594 8,410 6,834 3,206 1,300 3,963

Iowa Minnesota Michigan Ohio Indiana Illinois Nebraska Penn. South Dakota

All Others

Figure 4

Figure 5



Ontario Exports of Live Swine 23 to 50 kg to U.S. by State, 2004-2005

0

50,000

100,000

150,000

200,000

250,000

300,000

Hea

d

2004 256,469 92,472 43,493 88,229 45,351 13,560 23,410 26,411 9,648 23,308

2005 194,238 91,774 73,260 66,226 39,587 32,123 23,836 17,671 5,200 20,289

Iowa Minnesota Ohio Michigan Indiana Penn. Illinois Nebraska South Dakota

All Others

Figure 6

Based on the export data shown in all the figures (i.e. Figures 1 to 6), it would seem to indicate that strong arguments could be made in support of using USDA hog price reports from any of the ECB, WCB or IAMN regions. This is also a good reason to use a National hog price report since the National reports include all data from the ECB, WCB and IAMN regions. Other factors such as number of sales (i.e. head) covered by a specific report, geographical proximity, size of the market, whether it is representative of U.S./North America, if it is used by industry, perceived validity of the prices contained in a report, and etc., need to also be considered when selecting an appropriate price report. The analysis section later in this report will help contribute to this process.



4.0 SELECTED LITERATURE REVIEW

This section contains some observations from selected research articles and studies from 1997 to 2006.

4.1 Price Discovery in Concentrated Livestock Markets: Issues, Answers, Future

Directions (Purcell, Editor, 1997)

This paper assembles several articles together from multiple authors that look at pricing issues as a result of industrialization in the swine industry. Some of the issues discussed include looking at the diminishing role of open markets and the increasing role of carcass value pricing, contracting, vertical integration, and marketing supply contracts. The paper states several times that price risk is inherent in the hog sector. One of the articles reviewed was written by Hayenga, Rhodes, Grimes, and Lawrence. These authors determined that a carcass value pricing system (CVP) based on carcass weight, backfat, and muscle score could explain 79% of the variation in carcass value compared to 58% in a typical live hog procurement system. Under most CVP systems, the base carcass price is formula determined relative to cash prices reported (e.g. Iowa-Southern Minnesota market). The live hog price is used to compute an equivalent carcass price using some standard formulas which may vary from processor to processor. In almost all cases, price is discovered in the live market rather than the carcass market. All packers in the Southeast region of the U.S. determine their base price from the Iowa-Southern Minnesota price. All CVP systems include premium and/or discount schedules for backfat and weight sort. Some CVP programs include premiums and discounts for loin-eye muscle depth. It is important to note that most marketing supply contracts do not change the traditional price discovery process for hog prices as most prices under these contracts are still based on live hog prices. These supply contracts do improve coordination between producer and packer but do not fundamentally change how prices are discovered in the market. With respect to price risk, the article discusses price window contracts and found that packers offer different contracts (e.g. $40-48/cwt versus $38-48/cwt). Above the high window price, the producer receives the high window price plus 50% of the difference between high price and market price. Below the low window price, the producer receives the lower window price less 50% of the difference between the low price and the market price.



The authors of the article go on to say that carcass value pricing by packers is an attempt to get producers to produce less fat in response to changing consumer preferences. The authors also state the Midwest cash live hog market (especially Iowa-Southern Minnesota) is the focal point of price discovery. A large number of packers with excess capacity relative to local supplies has been generating a very competitive price according to industry analysts. Almost all other prices across the U.S. are tied to these prices.

4.2 Livestock Price Discovery: Trends and Issues (Schroeder and Mintert, 1999)

These authors defined price determination as the market price during any period as determined by supply and demand whereas price discovery is the market price at which individual transactions are completed. Price discovery is the process by which buyers and sellers arrive at a price for a particular transaction. The authors go on to state that once common live direct trade cash markets are being replaced by non-cash procurement methods. Formula pricing is increasing and is based on an external reference price. Formula pricing has been common in grain markets for a long time. Local cash prices are often a terminal price (or nearby futures price) plus/minus a basis (which incorporates transportation and local grain elevator handling margins among other things). A growing percentage of hogs are sold via contracts which use a publicly reported market price (i.e. IAMN, ECB, WCB, and etc.) as the reference price. The shift from negotiating prices on each load of hogs to a formula pricing arrangement is primarily a price discovery issue. The declining percentage of hogs sold where price is negotiated prior to sale is an issue because of concerns about pricing inefficiencies (i.e. too expensive given the daily volume moving through a modern packing plant) and manipulation of base prices. The USDA now reports a weighted-average base market hog price for the IAMN market on a carcass weight basis. A growing percentage of hogs are now traded on a carcass weight basis, not a live weight basis. Carcass weight prices are based upon the estimated lean percentage. A base market price is the price paid/received before any premiums or discounts. An alternative base price source is the futures market. Futures prices rapidly reflect new information, viable sources of price expectations, readily available quotes, and are closely monitored to avoid manipulation. Concerns include time matching problems, basis, sometimes reflect new information only after cash markets have discovered this information (e.g. during times of rapidly changing supplies). In some instances, formulas using prices from the futures market lag other formula prices.



As the reader can see, these trends in hog pricing (i.e. use of formulas, payment based on % lean, and etc.) have continued from 1999 till now.

4.3 Marketing Slaughter Hogs Under Contract, Pork Information Gateway

Factsheet PIG 11-03-01 (Plain and Grimes, 2004)

This article looks at structural and marketing changes in the pork industry and their relationship to market price. The decline in spot market sales or “negotiated” sales has been offset by a steady increase in both contractual agreements between producers and packers and in packers raising their own hogs for slaughter. The declining number of hogs being sold on the spot market has created concern about the price discovery process, both for producers who sell hogs on the spot market and for those whose contract price is based in some manner off the spot market price. The USDA’s mandatory price reports began in April 2001 and provide great detail on hogs purchased on a carcass weight basis by packers who slaughter over 100,000 hogs annually. In 2003, nearly 95% of barrows and gilts slaughtered under federal inspection were covered by mandatory price reporting. The USDA reports daily data on six pricing categories of hog slaughter: “negotiated” purchases (i.e. spot market sales); “swine/pork market formula” (i.e. a contract where the price is determined by a publicly reported hog or pork price, e.g. IAMN top or carcass Cutout value); “other market formula” (i.e. a contract based on the lean hog futures contracts); “other purchase agreements” (i.e. all other producer marketing contracts including those tied to feed prices, window contracts, floor contracts, and ledger provisions); “packer sold” (i.e. from one packer to another), and “packer owned” hogs. The daily hog slaughter report can be found at: http://www.ams.udsa.gov/mnreports/lm_hg201.txt. Table 2 shows data for 2003 based on USDA’s mandatory price reports for Prior Day slaughter. The results show 13.28% of barrows and gilts slaughtered by reporting packers were purchased on the spot market, 20.93% were raised by packers, and 65.79% were purchased on a packer contract. Of note, “negotiated” purchases tended to be smaller hogs (i.e. 194.74 lbs carcass weight) and have a lower percent lean (i.e. 53.42%) than contract purchases.



Table 2. Market Hog Average Values by Marketing Arrangement, 2003

Marketing Arrangement

% of Purchases (%)

Percent Lean (%)

Carcass Weight (lbs)

Base Carcass Price ($/cwt)

Net Carcass Price ($/cwt)

Net Carcass Std Dev1

($/cwt)

Sort Loss ($/cwt)

Negotiated 13.28 53.42 194.74 52.00 53.52 6.24 1.18

Swine-Pork Market Formula

39.15 54.36 198.39 51.75 54.65 5.99 1.15

Other Market Formula

7.63 53.85 201.90 53.00 56.04 5.32 0.92

Other Purchase Arrangement

19.01 54.08 199.09 55.35 57.20 3.20 0.94

Packer-sold 2.11 52.34 199.26 54.44 57.40 6.20 0.80

Packer-owned 18.82 53.55 196.44 NA2 NA NA NA Source: Plain and Grimes, 2004 Note: Net Carcass Price includes credits for quality, transportation, time of delivery, and etc. The prices represent USDA/AMS Prior Day Slaughter Reports for barrows and gilts data for packers killing 100,000+ hogs/year in 2003; 1Std Dev = standard deviation. 2NA = not available.

Table 2 also shows that the highest average net price paid was for “packer sold” hogs ($57.40) while the lowest was for “negotiated” purchases ($53.52). The standard deviation of the net carcass price was highest for “negotiated” hogs ($6.24) and lowest for hogs sold under “other purchase arrangements” ($3.20). The average base carcass price was slightly higher for “negotiated” purchases ($52.00) than for “swine/pork market formula” ($51.75) but the net price for “negotiated” hogs was lower ($53.52 versus $54.65) due to “negotiated” hogs being smaller and less lean on average. USDA also issues reports on purchase prices, in addition to the Prior Day slaughter reports summarized above in Table 2. USDA issues three daily reports for each of the ECB, WCB, IAMN, and National regions. The first reports are for the prices paid before 9:30 AM central time (i.e. Morning report), the second reports are prices paid for hogs purchased before 1:30 PM central time (i.e. Afternoon report), and the final reports are issued by 8:00 AM the next day for all Prior Day purchases (i.e. Prior Day report). Table 3 shows average prices for 2003 for these reports by region.



Table 3. Average Negotiated Prices, 2003

Region $ per hundred pounds of carcass weight

Morning Report

Afternoon Report

Prior Day Report

National 51.39 51.69 51.82

Eastern Corn Belt 51.29 51.53 51.54

Western Corn Belt 51.41 51.78 51.95

Iowa-Minnesota 51.30 51.84 51.85

Source: Plain and Grimes, 2004 Note: The prices represent USDA Prior Day Slaughter Reports for barrows and gilts data for packers killing 100,000+ hogs/year in 2003.

From Table 3, it can be seen that prices paid tend to increase as the day progresses. For example, the National average price results show the Morning report ($51.39) was $0.30 lower than the Afternoon report ($51.69) and $0.43 lower than the average for the entire day ($51.82). In 2003, the number of hogs included on the Morning reports was 20.57% of the total included on the Prior Day reports. The number included on the Afternoon reports was 71.69% of the Prior Day reports. Therefore, 28.31% were purchased too late in the day to be included in the Morning or Afternoon reports. Calculations show that the National average price paid in 2003 for negotiated hogs between 9:30 AM and 1:30 PM was $51.81 while the average price paid after 1:30 PM and before midnight was $52.15. Morning reports are more volatile than the Afternoon reports because they are based on fewer hogs. The regional reports are slightly riskier than the National report. The ECB was lower than the National average price in 2003 while the WCB was slightly higher. These trends were also present in 2002.

4.4 Analysis of USDA Mandatory Hog Price Data (Grimes and Plain, April 2005)

This analysis reviewed data from USDA Mandatory Price Reports for the years 2002, 2003 and 2004 by quarter and is similar to that discussed in the previous section. Three different reports on negotiated hog prices which are named after their release times (Morning Report, Afternoon Report, Prior Day Report) were examined. The reports covered approximately 90% of Federally Inspected hog slaughter. The three different reports (i.e. Morning, Afternoon, and Prior Day) were compared for the four geographic regions covered by USDA’s Mandatory Price Reporting System Reports. The geographic regions are ECB, WCB, IAMN (which is a subset of the WCB), and National (which comprises all regions). Results showed that pork producers would be better off using the Afternoon or Prior Day Reports to set the base price for their marketing contracts. Producers should avoid the ECB price due to lower hog volumes and lower prices. The



WCB and IAMN prices are very similar and slightly higher than the National price. The Afternoon report prices were generally higher than the Morning report prices. The best explanation for the differences is that many contracts were priced off the Morning Reports which created an incentive for packers to delay aggressive bidding until after the Morning Report data had been submitted. Aggressive bidding pushed Afternoon prices higher. In theory, the Prior Day Report prices should be the most stable and hardest to manipulate of all the reports since it represents all hogs purchased on a specific day. Report prices were generally higher in the WCB and IAMN regions. This is expected since there are more packing plants and some hog-deficit areas in these regions. Hog-deficit areas in Iowa and Minnesota usually have the highest hog prices in the United States. Producers should negotiate marketing contracts based on either the IAMN or WCB price from the Afternoon or Prior Day Report as their base price. Not only will these prices be higher, but their inclusion of large numbers of hogs and larger time periods will make price manipulation more difficult.

4.5 Check-off Analysis of USDA Price Data (Grimes, Plain and Meyer, 2006)

This report looked at USDA price data for the month of January for the years 1999-2006. Table 4 shows that % volumes for “negotiated” hogs have decreased every year from 35.8% in 1999 to 10.2% in 2006. However, the prices of more than half the hogs sold (52%) in the U.S. are determined by the spot market (i.e. “negotiated” sets the price for both “negotiated” and “swine or pork market formula” pricing categories). The percent is likely higher than 52% because some “packer-owned” and “packer-sold” hogs are priced with some type of market formula. This study is based on 7,261,064 head sold and reported through the Mandatory Price Reporting (MPR) system in January 2006. This represents about 90.4% of federally inspected slaughter during this time.



Table 4. Percent of U.S. Hogs Sold Through Various Pricing Methods, 1999-2006

Pricing Method 1999 2000 2001 2002 2003 2004 2005 2006 Swine or pork market formula 44.2 47.2 54.0 44.5 41.4 41.4 39.9 41.8

Other market formula 3.4 8.5 5.7 11.8 5.7 7.2 10.3 8.8

Other purchase arrangement 14.4 16.9 22.8 8.6 19.2 20.6 15.4 16.6

Packer – sold NA1 NA NA 2.1 2.2 2.1 2.4 2.6

Packer – owned NA NA NA 16.4 18.1 17.1 21.4 20.1

Negotiated – spot 35.8 25.7 17.3 16.7 13.5 11.6 10.6 10.2

Total Non-Spot Market Purchases 64.2 74.3 82.7 83.3 86.5 88.4 89.4 89.8

Total Spot Market Purchases 35.8 25.7 17.3 16.7 13.5 11.6 10.6 10.2

Total Spot Market Based Purchases 80.0 72.9 71.3 61.2 54.9 53.0 50.5 52.0

Total Price-Shifting Purchases 17.8 25.4 28.5 20.4 24.9 27.8 25.7 25.4

Source: Grimes, Plain and Meyer, 2006 (National Pork Board study) Note: 2006 data were reported to USDA voluntarily; 2002 through 2005 data are based on USDA Mandatory Reports; 1999-2001 are based on industry surveys by the University of Missouri. 1NA = not available.

Table 5 shows “negotiated” hogs had the lightest average carcass weight, lowest net carcass price, and second lowest % lean. “Packer-sold” hogs had the highest base and net prices.

Table 5. Hog Marketing Arrangements Averages, January 2006

Marketing Arrangement Percent Lean (%)

Carcass Weight (lbs)

Base Carcass Price ($/cwt)

Net Carcass Price ($/cwt)

Negotiated 53.95 202.21 54.68 55.52

Swine-Pork Market Formula 54.68 205.61 54.25 56.40

Other Market Formula 54.34 209.90 55.53 58.11

Other Purchase Arrangement 54.03 206.22 55.62 56.83

Packer-sold 54.29 205.11 56.51 59.42

Packer-owned 53.57 204.57 NA1 NA

Source: Grimes, Plain and Meyer, 2006 (National Pork Board study) Note: Net Carcass Price includes credits for quality, transportation, time of delivery, and etc.. 1NA = not available.

Direct comparisons between the various pricing categories cannot be made due to definitions for the categories not being consistent over the entire 1999-2006 period. However, the “negotiated” category is directly comparable across the entire period and is consistently defined.



4.6 Developing An Alternative Hog Pricing Scheme (McEwan, Duffy and DeVries, 1998)

This report was done in 1998. At the time, Ontario was looking at using a new U.S. price series to determine it’s base formula price. In an effort to find an alternative pricing scheme to the Indiana/Illinois direct live prices for Ontario that reflects what U.S. hogs were selling for and was fair and equitable to both producers and processors (i.e. no increased revenue or cost), the following criteria were used:

• ability to track the historical Indiana/Illinois price series closely • ability to access price data – consistency, reliability • ability to accurately represent the U.S. industry (i.e. sufficient volumes) • ability to reflect upcoming hog trends (i.e. changes in carcass quality) • long run viability of price reports

Based on these criteria it was found a new pricing system could be developed that incorporates many of the changes that have occurred in the U.S. regarding hog carcass quality. This new system can be comprised of a blend of the Indiana/Illinois, ECB, WCB, and National Cost Base pricing series. Table 6 shows strengths and weaknesses associated with various pricing options available at that time (i.e. live weight carcass basis, National costs, and carcass Cutout). Notice that even back in 1998, the live weight pricing option had decreasing animal volumes.

Table 6. Strengths and Weaknesses of Various Pricing Options

Pricing Option Strengths Weaknesses Live Weight -easily understood

-6 to 8 companies report -different % leans

-decreasing volumes -subject to poor price reporting -not actual sales, just intentions

Carcass Basis -larger volumes -different % leans -divides by regions

-subject to poor price reporting -companies pop in/out -not actual sales, just intentions

National Cost -30% of U.S. slaughter -cannot be manipulated -wave of the future

-may be regionally biased -major packers do not report

Carcass Cutout -wholesale supply/demand -wave of the future

-subject to poor price reporting



4.7 Hog Price Comparison Update (Duffy, McEwan and O’Neil, 2000)

In this report, the National Cost 51-52% price series was compared to Quebec, Manitoba, ECB, WCB and Iowa-Southern Minnesota price series. Within the ECB, WCB and Iowa-Southern Minnesota price series, the % lean categories compared were 49-50%, 51-52%, 53-54% (Iowa-Southern Minnesota only), and 49-51%. The time period used in the comparisons was April 19, 1999 to May 5, 2000.

The results showed:

• Quebec prices are higher than National Cost (Ontario) • Manitoba prices are lower • ECB, WCB, and the Iowa-Southern Minnesota Direct high prices are

higher than the National Cost. However, average, weighted average and mean prices all are lower than National Cost.

• Each of the Quebec, Manitoba, ECB, WCB, and Iowa-Southern Minnesota Direct prices are strongly and positively correlated with the National Cost (Ontario) price series for the time period used.

The National Cost price is somewhere in the middle and since the high prices may be artificially high (potentially only one sale at one plant) and the average, weighted average, and mean prices may be artificially low (due to questionable reporting by one major processor in the ECB, WCB and Iowa-Southern Minnesota regions), the National Cost probably is still a good price series to use. It is more likely to be closer to what the U.S. market price really is, given that nobody seems to know for sure what the real market price is or which price series is most reflective.

4.8 Literature Review Summary

Some important observations from the studies mentioned above include the following: i) Prices are highest in WCB and IAMN due to greater number of packers

and are generally on a carcass basis. National prices tend to be in the middle between WCB/IAMN and ECB. Prior Day (purchased) prices tend to be higher than Afternoon report prices for every region (Afternoon prices are higher than Morning report prices).

ii) “Negotiated” purchases are on a declining trend over the past several

years. “Negotiated” purchases decreased from 35.8% in January 1999 to 10.2% in January 2006. An alternative base price source is the futures market. Advantages include it is a viable source of price expectations and is closely monitored to avoid manipulation. However, there are time matching problems, basis risk, and in some instances formulas using futures prices lag other formula prices.



iii) “Negotiated” hogs are smaller and less lean with lower net carcass prices

and higher price variability than “swine or pork market formula” hogs. The largest volume of purchases are on a “swine or pork market formula” (currently 41.8%).

iv) These formula prices are often dependent upon a spot market or

“negotiated” price. However, in January 2006, at least 52% of hog prices in the U.S. were determined from “negotiated” or spot market (i.e. “negotiated” sets price for “negotiated” and “swine or pork market formula”).

v) Analysis of USDA mandatory price reporting data in 2003 showed that net

carcass prices (which include premiums and discounts) tended to be lowest for “negotiated” purchases and highest for “packer-sold” hogs.

vi) Average base carcass prices were slightly higher for “negotiated”

purchases than for “swine or pork market formula” prices but net carcass prices were lower for “negotiated”. This was due to “negotiated” hogs being smaller and less lean on average.

vii) “Other purchase arrangement” hogs have less price variability (these

include hog prices tied to feed prices, window contracts, floor contracts, ledgers, etc.).

viii) WCB and IAMN Afternoon or Prior Day reports could be used as a price

reference due to their higher hog volumes and longer time periods which makes price manipulation more difficult.



5.0 TRAVEL NOTES FROM IOWA, WASHINGTON AND QUEBEC

Study trips were taken to 3 different locations in North America, namely Ames, Iowa; Washington D.C.; and Quebec City, Quebec. The purpose of these trips was to visit with industry specialists about various USDA price reports, issues of packer concentration and bias, base formulas used and other pork marketing trends.

5.1 Iowa Trip

Below is a summary of the comments made by the individuals visited while in Iowa.

i) Dermot Hayes, Agricultural Economist, Iowa State University

• There is some thought that large U.S. processors can impact the daily

Iowa/Minnesota Daily Direct Morning Hog Report (i.e. LM_HG205) depending on their time of purchase during the day.

• The National Daily Direct Hog Prior Day Report – Slaughtered Swine

(i.e. LM_HG201) is the most accurate report because it represents a large volume of the U.S. slaughter, accounts for different purchasing methods, USDA conducts random audits, and is the actual cost for slaughtered swine paid by a packer.

ii) John Lawrence, Agricultural Economist, Iowa State University

• It was stated that the LM_HG201 report accurately reflects what U.S.

packers are paying for market hogs. While there are limited hog volumes sold on a “negotiated” basis, there has been an attempt by some of the major producers to keep this column of the report viable because most of the other pricing formulas use this column to benchmark from. It is possible for packers to “bid-up” the “negotiated” column which in turn drives up the “swine or pork market formula”. However, this is not to any packer’s advantage because the 201 report represents actual packer costs.

iii) Doug Reisberg, Swine Production Manager, Farms.Com

• The main advantages to feeding market hogs in Iowa are the large

shipping weight ranges offered by packers and the low cost feed. Many counties in Iowa face the same disease pressure as Ontario with Circo Virus and PRRS.

• The trucking cost to move early wean pigs (1,100 per load) or 25 kg

pigs (520 per head) is about $C 4,500 from Ontario to Iowa.



iv) Mike Lynch – Supervisory Market News Reporter, Livestock & Grain

Market News, USDA

• U.S. packing plants continue to use different tools for hog grading. Examples of grading tools used are: Fat-o-meter (Farmland and Smithfield measure at the 10th rib); ruler used by Hormel; and other plants use the electronic scanning devices. For the most part, the use of different grading tools is done to maintain mystery in the marketplace and make it difficult for producers to do direct packer to packer comparisons.

• It is conceivable that large producers could sell large volumes in the

“negotiated” category of the 201 report and possibly influence price. However, the 201 report is what packers actually paid, therefore this doesn’t matter. Plants are audited at least 3 times/year, but some plants receive audits more frequently.

• There is some expectation that head counts will be changing because

Smithfield can now own pigs in Iowa. Therefore, these pigs will become packer owned. Also, the new packer Triumph will have many of the pigs it procures as packer owned since producers own the plant.

• Market News has a 3-70-20 rule in place for the 201 report. This

means there must be 3 packers, no one packer can procure more than 70% of the volume for 60 days, and no one packer can be the only packer 20% of the time.

v) Bill Sumpter, Supervisory Market News Reporter, Livestock & Grain

Market News, USDA

• The pork carcass report (nw_ls500 or 500 report) is voluntary and represents about 3.5% of the total pork slaughter. The prices represent negotiated sales within a 10 day period. There is no Canadian product included.

• The future for hog price reporting is that probably the mandatory

pricing system will continue but on a voluntary basis. There seems to be general consensus amongst all the major industry stakeholders that there is no better alternative for price discovery therefore continuing with the current system makes sense. (note: In September 2006, the U.S. Senate approved a five-year reauthorization of the Livestock Mandatory Reporting Act of 1999. The House passed an identical bill last September. The law expired September 30, 2005.)



5.2 Washington Trip

Provided below is a summary of the notes taken while visiting industry specialists in Washington, D.C..

i) John E. Van Dyke, Chief Livestock and Grain Market News, USDA;

Warren Preston, Chief Economist, Agricultural Marketing Service, USDA

• These officials feel that the current price reporting through the 201 report is as close to 100% accurate as possible. The prices collected are actual net prices (i.e. include premiums and discounts) by lot and a lot can range from 25 to 200 head. Packers are required to keep a paper trail that identifies the various lots and a separate administrative branch different from Agricultural Market News does the plant audits. Price reporting is done on an individual plant basis for those packers having multiple sites.

• Unsurprisingly, packers have different grids and pricing policies. For

example, Tyson has a low base price but higher premiums and discounts. However, because Ontario Pork is using the Prior Day slaughter price, then the price used is what packers actually paid for their daily kill. Apparently, net prices do vary by packer. There is some scrubbing of the data by the USDA to eliminate the 1 head lots.

• It was stated that packer concentration is not illegal, but price fixing is.

Packers like the current price reporting system because it now puts them all on a level playing field in terms of cost of goods.

• A copy of the report titled “Livestock Market Reporting” prepared by

the United States Government Accountability Office was received. By and large the report was supportive of Mandatory Price Reporting and the quality of the reports released to the public. Areas identified for improvement were better coordination between various government agencies and additional steps are needed to ensure accurate price data is being submitted.

ii) William Hahn, Animal Products Branch, USDA

• Farm to wholesale price spreads have been flat to slightly upward. If

inflation is considered then the trend is downward. Wholesale to retail spreads have increased more rapidly than inflation. Retail prices are sticky and there seems to be slow price transmission. Surprisingly, the comment was made that meat retailing has not shown a lot of technical innovation.



• It is difficult to make statements about profitability based on price spreads between farm/wholesale and wholesale/retail. If spreads are high, there is a strong possibility of large profits but there could be off-setting costs. Thus, it is difficult to make definitive statements regarding stakeholder profitability.

• At the wholesale level, packers are thought to be price takers with

limited monopoly powers.

iii) Jesse Sevcik, Vice President Legislative Affairs; Mark Dopp, Senior Vice President Regulatory Affairs & General Counsel, American Meat Institute

• Despite the fact that mandatory price reporting expired in September

of 2005, the American Meat Institute does not anticipate packers withdrawing from submitting their swine and beef prices. Packers have already absorbed the cost of compliance and about 90% of all the swine packers are reporting prices. The American Meat Institute is supportive of making price reporting mandatory.

5.3 Quebec Trip

Below are the notes taken from the study trip to Quebec to learn about hog pricing in this province.

i) Richelle Fortin, Director of Economics, Quebec Pork Producers

Federation (FPPQ)

a) Industry Background

• As stated in the FPPQ mission statement, their role is to “bring together all Quebec pork producers to obtain the best collective social, technical and economic conditions through the implementation of strategies that maintain and develop businesses, production, as well as the entire pork industry in Quebec”.

• The FPPQ is developing programs for producers that comply with

certain marketing criteria (i.e. incentive and discount systems). Examples of the desired marketing criteria include: being Canadian Quality Assurance (CQA) approved, shipping hogs with empty stomachs, ensuring that animals are properly tattooed, and marketing animals that have visceral that meets acceptable standards. It was stated that there seems to be about 5% of the producer population that has trouble complying with any marketing program. Further, approximately 5% of the hogs marketed in Quebec are not CQA compliant and there is to be a penalty system implemented in the near future (i.e. $2.00/hog if not enrolled in the CQA program). Also, the



FPPQ is developing a system to have real-time market hog information regarding pig numbers, transportation, feed withdrawal, and etc.

• The province of Quebec has had a production moratorium caused by

environmental concerns since June 2002. About 50% of farm businesses are farrow to finish while 27% are finishing. The regions of the province with the most producer numbers are Saint Hyacinthe, Quebec, and Beauce. The FPPQ figures there were approximately 4,097 individuals that either owned pigs or were feeding pigs under contract in 2005. However, according to the 2005 ASRA (Farm Income Stabilization Insurance) figures for hog operations participating in the program, there were only 1,595 individuals actually owning pigs. Further, statistics provided by the FPPQ show the top 4 firms produce 22.3% of Quebec’s production while the top 10 account for 31%. It was estimated that about 50% of Quebec’s production is raised under contract.

• In Quebec there are over 30 different sow buyers that have to submit a

marketing fee per culled sow (i.e. approximately $9.50/sow). It was stated that there are plans to develop a cull sow marketing agency.

• With respect to stabilization, the producers felt that CAIS (Canadian

Agricultural Income Stabilization) did not work very well. It was mentioned that producers would be unwilling to trade the Quebec government stabilization program ASRA for access to the U.S. market place to sell live hogs.

b) Marketing System

The Quebec marketing system works as follows: • Producers’ forward their sales forecasts at least 4 weeks ahead of time

and confirm their offer 24 hours before the auction. Information sent to the auction includes producer number, quantity, delivery date and time, name of packing plant, and transport contractor.

• There are 3 methods by which hogs are sold and they are: (i) pre-

assigned (or pre-allocated) – 50% of animals based on historic volume; (ii) english contract – 25% of animals are offered every month; and (iii) residual auction – 25% of animals are offered daily. These volumes by marketing type have been in place since January 2001.

• The starting price for the english contracts are based off USDA’s 201

report. The sale is made when the total quantity purchased is equal to the total quantity offered (+/- 1,500 animals per week).



• With respect to the residual auction, buyers bid on fictitious lots of 150 animals. The starting price is set at the U.S. reference price (i.e. based off USDA 201 report) which goes down by $0.20/100 kg every 3 seconds. When the first buyer gives a signal indicating that the price suits him/her, the other buyers have 3 seconds to raise the price by $0.10/100 kg. The highest bidder gets the lot. The starting price of the next lot is set at the price of the previous sale.

• When marketing hogs, the producer has the responsibility to transport

hogs to the closest packing plant, however, if a plant has too many hogs, the FPPQ will re-direct to another plant. The costs for re-direction are split equally between the producer and processor. Approximately 26.5% of the hogs sold are shipped to hog deficit regions relative to slaughter capacity.

• The Quebec marketing system does allow processors the opportunity

to slaughter their own hogs first. However, processors feel that their own hogs should not be in competition with weekly general market hog flow.

• Producers are paid based on the average price for the week. Presently

the province of Quebec has only 1 market hog grid used to settle hogs. Bonuses based on the grid (i.e. desired target weight and fat content) are paid individually to each producer.

ii) Michel Morisset, Professor, Department of Agricultural Economics, Laval

University

• Mr. Morrisset was responsible for developing the current Quebec marketing system for hogs. His comment on the Quebec processing industry was that by North American standards, they have too many plants and are too small (i.e. typical U.S. plant is now slaughtering 16,000/day versus 10,000/week in Quebec).

• His comments regarding the outlook for the Quebec industry were not

rosy. Quebec is struggling to remain viable and suffers from health challenges, the environmental production cap, small processors, and the desire by larger producers to vertically integrate.

• With respect to the ASRA program, it is expected that it will be

difficult to maintain in the future because of budgetary constraints. The program is up for re-negotiation at the end of the 2007/08 fiscal year.



iii) Luc Pelletier, ASRA Manager , Quebec Government

• The program was developed to support the small family farm. However, producers of all sizes are eligible for pay-outs. Also, Quebec producers are eligible for ASRA payments if the hogs are finished in Quebec even if the piglets/weaners may have been born in Ontario.

• The CAIS program ensures the primary intervention level, while

ASRA becomes a supplementary program. As a result, the CAIS program can cover the operation’s losses beyond the benefit provided by ASRA. Farming operations that participate in both programs will therefore receive the higher amount between the governments’ contributions calculated under the CAIS program and those calculated under the ASRA program for their fiscal period.

• Between the years of 2000 and 2004, net ASRA payments for hogs

have been received in 2002 ($19.72/hog) and 2003 ($13.58/hog). For the same period for sows, net payouts were received in 2000 ($3.35/sow), 2002 ($266.48/sow), and 2003 ($153.46/sow).

iv) Michel Morin, Economist, Quebec Pork Development Centre

• Even though the USDA’s 201 report provides carcass measurements

for hogs (i.e. back-fat, loin-eye depth, and etc.), it was deemed not possible to use this information because of differences in probe types between U.S. packing plants. Therefore, one cannot tell whether a Canadian hog is better or worse than a U.S. hog. Thus, when using the 201 report to develop a Quebec base price, the U.S. price is divided by the Quebec market hog index (i.e. 13 week rolling average).

• The USDA 201 report is used to form the price for the pre-allocated

hogs (i.e. 201 converted to Canadian equivalency less $1.00/cwt) and a base price for the english auction (i.e. 201 price +/- bidding). The daily auction does not have a base price. The USDA 201 report (i.e. “swine pork market formula” and “negotiated” columns) is converted to Canadian equivalency by adjusting for dressing percentage (i.e. 74% vs 80%), exchange rate (i.e. Bank of Canada noon hour rate), and the Quebec index.

• The major issue facing the Quebec marketing system is with respect to

the daily auction. The feeling is that because Olymel is the major buyer on the auction (i.e. slaughters approximately 60% of the Quebec weekly kill) that they could lower the auction price by simply not bidding. The Canadian Competition Bureau did not have a problem with the merger between Olymel and Brochu because they looked at competition within a Canadian and North American perspective. Also,



the Bureau felt that the FPPQ provided sufficient balance in marketing power to offset the packer concentration caused by the merger.

• The processor Olymel is owned by a large producer co-op. The FPPQ

and Olymel are frequently presenting arguments to the Regie (i.e. governing body which has arbitration authority).

In summary, Mandatory Price Reporting has given the industry much timely information (i.e. daily carcass weight data, percent lean data, back-fat and loin depth, reports by sales method, and net price versus base price). All industry experts expected price reporting to remain in place despite it’s current voluntary state. There was general consensus amongst all individuals visited (i.e. academics, government, and industry) that the net price reported on the 201 report accurately reflects what U.S. packers are paying for market hogs.



6.0 HOG PRICING ANALYSIS

This section provides a comparison of hog prices within the U.S. and Canada by region or province.

6.1 Introduction

U.S. regional prices examined include the ECB, WCB, IAMN, and National. Provinces used in the comparison are Quebec, Ontario, and Manitoba. Further, wholesale pork prices (i.e. estimated Cutout values) were used to compare with hog prices as well. For analysis purposes, U.S. prices are daily and will cover the period January 2, 2002 – September 15, 2006. Many of the USDA mandatory price reports began during 2001 but not all on the same date. Therefore, the first complete calendar year for most of the prices is 2002 and this was picked as the beginning point for the analysis. Canadian prices are weekly and cover the period January 4, 2002 – September 15, 2006. Figures relating to the analysis are all in Appendix One.

6.2 Summary of C201 Price Report

Since May 2003, Ontario has used the C201 price to establish a base price for market hogs. The C201 price uses data from the pricing categories of “negotiated” and “swine or pork market formula” which are collected within the 201 report (National Daily Direct Hog Prior Day Report – Slaughtered Swine). This section shows how the 201 report has performed over the period of 2002-2006. The 201 report is the USDA’s cornerstone report because it is National in scope. It reports actual packer prices paid (i.e. base price plus/minus any premiums or discounts) for hogs slaughtered on the report date. The summary tables below include pricing data for hogs sold by the following pricing categories:

i) Negotiated (i.e. spot market sales) ii) Swine or pork market formula (i.e. a contract where the price is

determined by a publicly reported hog or pork price, e.g. IAMN top or carcass Cutout value)

iii) Other market formula (i.e. based on CME lean hog futures contract) iv) Other purchase arrangement (i.e. all other producer marketing

contracts including those tied to feed prices, window contracts, floor contracts, and ledger provisions)

v) Producer Sold (includes the 4 pricing categories above) vi) Packer Owned vii) Packer Sold

For clarification, the tables found below contain a category called “producer sold” which is the total for the pricing categories of “negotiated”, “swine or pork market



formula”, “other market formula”, and “other purchase arrangements”. Further, values for the C201 series are included in the summary tables for comparison purposes. In some tables (i.e. base carcass price, premiums, % lean, carcass weight, estimated dress %), the C201 values have been estimated using the “negotiated” and “swine or pork market formula” values. From Table 7, it can be seen that on an annual basis, the 201 report represents approximately 90-92% of total U.S. federally inspected hog slaughter volume or about 90-94 million head.

Table 7. Volume of U.S. Hogs Sold Through Various Pricing Categories, 2002-2006

2002 2003 2004 2005 2006 All Negotiated 13,168,274 12,124,305 10,276,750 10,332,210 6,482,917 52,384,456 Swine or Pork Market Formula 38,989,866 35,718,570 37,705,503 38,312,778 24,683,005 175,409,722 Other Market Formula 8,325,697 6,968,165 8,537,057 8,297,947 5,496,396 37,625,262 Other Purchase Arrangement 11,735,521 17,352,971 16,780,961 15,350,490 10,294,900 71,514,843 Producer Sold (All Purchase Types) 72,219,344 72,161,409 73,300,271 72,293,425 46,957,218 336,931,667 Packer Owned 15,646,482 17,169,263 17,898,147 19,210,430 13,964,893 83,889,215 Packer Sold (All Purchase Types) 2,011,220 1,924,760 1,962,716 2,316,908 3,895,779 12,111,383 Total Number of Head 89,877,046 91,255,432 93,161,134 93,820,763 64,817,890 432,932,265 Total U.S.Federally Inspected Slaughter 98,461,690 100,915,732 101,678,766 102,501,065 71,668,000 475,225,253 201 Volume as % of Total U.S.FI1 Slaughter 91.3% 90.4% 91.6% 91.5% 90.4% 91.1% Constructed 201 52,158,140 47,842,875 47,982,253 48,644,988 31,165,922 227,794,178 Constructed 201 % of Total U.S.FI 53.0% 47.4% 47.2% 47.5% 43.5% 47.9% Source: USDA lm_hg201 Report; Annual Meat Trade Review; Estimated Weekly Meat Production Under Federal Inspection Note: 2006 is year to date September 15, 2006; 1FI = Federally Inspected.

The majority of hogs are producer sold (72-73 million head annually) with the most common pricing arrangement being those hogs sold on a “swine or pork market formula” basis. Notice that “packer owned” hogs have increased from 2002 to 2005. Also, observe that the volume of hogs represented by the C201 category represented approximately 48% of the federally inspected hog slaughter for the period. Table 8 shows the percent of U.S. hogs sold through the various pricing categories (e.g. “negotiated”).



Table 8. Percent of U.S. Hogs Sold Through Various Pricing Categories, 2002-2006

2002 2003 2005 2006 All Negotiated 14.7% 13.3% 11.0% 11.0% 10.0% 12.1% Swine or Pork Market Formula 43.4% 39.1% 40.5% 40.8% 38.1% 40.5% Other Market Formula 9.3% 7.6% 9.2% 8.8% 8.5% 8.7% Other Purchase Arrangement 13.1% 19.0% 18.0% 16.4% 15.9% 16.5% Producer Sold (All Purchase Types) 80.4% 79.1% 78.7% 77.1% 72.4% 77.8% Packer Owned 17.4% 18.8% 19.2% 20.5% 21.5% 19.4% Packer Sold (All Purchase Types) 2.2% 2.1% 2.1% 2.5% 6.0% 2.8% Constructed 201 58.0% 52.4% 51.5% 51.8% 48.1% 52.6% Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006.

Over the period, approximately 77.8% of all hogs sold were “producer sold”, with “packer owned” hogs representing 19.4% and “packer sold” (all purchase types) hogs accounting for 2.8%. The pricing category of “swine or pork market formula” accounted for about 40.5% while “negotiated” represented 12.1% of all hogs sold. “Producer sold” hogs have decreased from 80.4% in 2002 to 72.4% in 2006 while “packer owned” hogs have increased from 17.4% in 2002 to 21.5% in 2006. The pricing category of “negotiated” has seen a steady decline from 14.7% in 2002 to 10% in 2006. The pricing category of “swine or pork market formula” has also experienced a decrease from 43.4% in 2002 to 38.1% in 2006. Tables 9 and 10 show the average base carcass prices and net carcass prices by pricing category. The net carcass price includes any premiums or discounts received by the hog seller. No prices were reported for packer owned hogs. Table 9 shows that during the period, “packer sold” hogs generally had the highest average base price followed by “other purchase arrangement”. The pricing category of “negotiated” had the second highest base price in 2004-2005 while “other market formula” had the lowest average base price for the period.

Table 9. Base Carcass Price ($US/cwt) of U.S. Hogs Sold Through Various Pricing

Categories, 2002-2006 2002 2003 2004 2005 2006 All Negotiated 45.53 52.00 69.80 66.78 63.03 59.20 Swine or Pork Market Formula 45.49 51.75 69.15 65.95 62.68 58.78 Other Market Formula 48.35 53.01 59.40 62.59 60.51 56.54 Other Purchase Arrangement 52.30 55.35 67.00 64.40 61.96 60.09 Producer Sold (All Purchase Types) 47.30 52.83 67.49 65.33 62.25 58.84 Packer Owned NA1 NA NA NA NA NA Packer Sold (All Purchase Types) 45.76 54.44 71.75 68.97 63.11 60.61 Constructed 201 45.50 51.81 69.29 66.13 62.75 58.88 Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006; 1NA = not available.



Table 10 shows that the highest net carcass price over the period was for “packer sold” hogs at $63.91/cwt. The next highest prices were for “other purchase arrangement” and “swine or pork market formula” hogs. Lowest net carcass prices were for “other market formula”.

Table 10. Net Carcass Price ($US/cwt) of U.S. Hogs Sold Through Various Pricing

Categories, 2002-2006 2002 2003 2004 2005 2006 All Negotiated 47.01 53.52 71.23 67.99 64.50 60.63

Swine or Pork Market Formula 48.71 54.65 71.83 68.38 65.11 61.53

Other Market Formula 51.33 56.05 62.48 65.40 63.55 59.53

Other Purchase Arrangement 54.88 57.20 68.71 65.78 63.35 61.90

Producer Sold (All Purchase Types) 50.10 55.25 69.90 67.43 64.40 61.23

Packer Owned NA1 NA NA NA NA NA

Packer Sold (All Purchase Types) 51.07 57.40 74.47 71.48 65.80 63.91

Constructed 201 48.30 54.38 71.71 68.30 64.99 61.32 Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006; 1NA = not available.

Table 11 shows the average premiums by pricing category. The difference between Net Carcass Price and Base Carcass Price is the average premium or discount received.

Table 11. Premiums ($US/cwt) on U.S. Hogs Sold Through Various Pricing Categories, 2002-2006 2002 2003 2004 2005 2006 All Negotiated 1.48 1.53 1.43 1.21 1.47 1.42





Packer Owned NA1 NA NA NA NA NA


Constructed 201 2.80 2.56 2.42 2.17 2.24 2.45

Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006. Premiums = net carcass price - base carcass price; 1NA = not available.

Premiums appear to have decreased over time. Average premiums were highest in the 2002 and 2003 years for all categories with the exception of “other market formula” which had it’s highest premium in 2004. The category with the highest premium for the time period is “packer sold” hogs at $3.30/cwt while the lowest average premium was for “negotiated” hogs at $1.42/cwt. The average % lean of U.S. hogs by pricing arrangement is seen below in Table 12. The trend appears to be steady to slightly increasing over time. The pricing category of “swine or pork market formula” had the highest % lean at 54.42%



followed by “other purchase arrangement” at 54.11% and “other market formula” at 54.04%. The lowest % lean hogs were in the “packer sold” (53.36%) and “packer owned” (53.40%) categories. The average % lean for “negotiated” hogs was 53.52%. The C201 category has shown an approximately 0.6% lean increase from 2002 to 2006.

Table 12. Percent Lean of U.S. Hogs Sold Through Various Pricing Categories, 2002-

2006 2002 2003 2004 2005 2006 All Negotiated 53.19 53.42 53.37 53.79 53.94 53.52





Packer Owned 53.49 53.55 53.19 53.28 53.56 53.40


Constructed 201 53.90 54.12 54.18 54.41 54.54 54.21 Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006.

There was no attempt by the authors of this study to compare % leans between the U.S. and Canada because of differences in calculation methods. Also, there are differences in % lean calculations between U.S. processing plants (i.e. hogs grade differently depending on the grading technology used).

Table 13 illustrates the average carcass weight by pricing category.

Table 13. Carcass Weight (lbs) of U.S. Hogs Sold Through Various Pricing Categories,

2002-2006 2002 2003 2004 2005 2006 All Negotiated 193.82 194.74 195.15 197.40 197.30 195.58





Packer Owned 198.13 196.44 195.71 199.31 199.65 197.74


Constructed 201 196.07 197.47 198.75 201.03 200.73 198.67

Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006.

With respect to carcass weights, the general trend has been towards heavier carcass weights over time. Hog weights within the C201 report have increased about 4.5 lbs from 2002 to 2006 or approximately 1 lb annually. The heaviest hogs were in the “other market formula” category (202.96 lbs) followed by



“packer sold” hogs at 202.40 lbs. The lightest hogs were in the “negotiated” and “packer owned” groups. Table 14 shows the estimated dress % of hogs sold through the various pricing categories. Estimated dress % at the plant is calculated as carcass weight divided by live weight.

Table 14. Estimated Dress % of U.S. Hogs Sold Through Various Pricing Categories,

2002-2006 2002 2003 2004 2005 2006 All Negotiated 75.39% 76.05% 76.88% 76.73% 76.01% 76.22%

Swine or Pork Market Formula 75.60% 75.74% 75.88% 75.84% 75.75% 75.76%

Other Market Formula 76.34% 76.44% 76.20% 75.73% 75.57% 76.08%

Other Purchase Arrangement 75.93% 76.93% 77.37% 77.63% 77.58% 77.06%

Producer Sold (All Purchase Types) 75.70% 76.05% 76.27% 76.23% 76.08% 76.07%

Packer Owned 76.51% 76.15% 76.70% 76.92% 77.15% 76.66%

Packer Sold (All Purchase Types) 76.44% 78.84% 78.08% 78.94% 78.00% 78.06%

Constructed 201 75.55% 75.82% 76.09% 76.03% 75.80% 75.87% Source: USDA lm_hg201 Report Note: 2006 is year to date September 15, 2006. Dress % = carcass weight / live weight.

Most of the categories show an increase in the estimated dress % from 2002 to 2006. The exception is the “other market formula” category. The increase in dress % is likely due to hogs becoming leaner over time. The highest dress % was seen in the “packer sold” and “other purchase arrangement” groups. The lowest dress % was seen in “swine or pork market formula” and “other market formula” categories. Most pricing categories have a dressing % in the 75-76% range, depending on the year. The exceptions are the categories of “other purchase arrangement” and “packer sold” hogs which have some years with dressing percentages ranging from 77-78%. In summary, the 201 report has shown increases in % lean, carcass weight and dress % over time. The pricing category of “producer sold” has experienced declining hog numbers while “packer owned” and “packer sold” hogs have increased in numbers. “Negotiated” hogs and “swine or pork market formula” hogs have had declining numbers from 2002-2006.

6.3 Comparison of 201 Report Prices With Other U.S. Hog and Pork Cutout Daily Prices, 2002-2006

The 201 report used by Ontario Pork to calculate it’s base price is one of many USDA daily hog price reports. The following table provides for information purposes some of the other USDA reports (by report number) that represent Morning, Afternoon and Prior Day (purchased) prices by region.



Table 15. USDA Hog Price Reports by Region and Report Number

Region Report Number

Morning Report

Afternoon Report

Prior Day Report

National 202 203 200

Eastern Corn Belt 209 210 207

Western Corn Belt 211 212 208

Iowa-Minnesota 205 206 204

Source: USDA The National reports (i.e. 202, 203 and 200) include information from the ECB and WCB regions. Also, the IAMN data is included in the WCB figures. For each region, there are three reports which are published during the Morning, Afternoon, and the following day (Prior Day Report) which all relate to the same hog sales and prices. As will be discussed in a later section, the hog volume represented on each report increases as the day progresses (i.e. hog volume is larger in the Afternoon report when compared to the Morning report, and higher still on the Prior Day report compared to the Afternoon report). The USDA also publishes the National Daily Base Lean Hog Carcass Slaughter Cost (also known as the National Cost or 213 report) which reports prices for 49-50%, 51-52%, and 53-54% lean hogs on a National basis and includes data for producer sold “negotiated” and “swine or pork market formula” and packer sold “negotiated” and “swine or pork market formula” data from the 201 report. To provide a comparison of wholesale pork prices, the USDA National Carlot Pork Report (also known as the 500 report) publishes prices for an estimated pork carcass Cutout, which is calculated from loin, butt, picnic, rib, ham and belly primal prices. The Cutout value represents the wholesale pork value of a 200 lb carcass that is 53-54% lean. Prior to January 3, 2006, the Cutout represented the value of a 185 lb carcass at 51-52% lean. Appendix One contains several figures that highlight various hog prices, price spreads, and hog volumes related to the analysis. Further, Appendix Two contains several tables that provide a detailed comparison of several USDA hog prices related to the following analysis and discussion. The tables that follow in the text below provide a summary of some of the key data from the Appendix Two tables. As stated previously, January 2, 2002 was chosen as the starting date for this analysis because 2002 represents the first full calendar year that prices were available for most of the reports. The exceptions are for “negotiated” (live basis) and “swine/pork market formula” (carcass basis) prices reported under the National and regional Morning, Afternoon, and Prior Day purchases reports. The prices began being reported during the 2004 year and therefore are not directly comparable with the other prices that have data back to January 2, 2002. No price data was reported for “packer owned” hogs under the 201 report.



For the analysis period mentioned above, the Price Comparison tables in Appendix Two display the average price, standard deviation, low price, high price, count (number of observations), average daily hog volume (corresponding to this price), and total hog volume for the period. The CV (coefficient of variation) is calculated as the standard deviation (St Dev) divided by the average. It is a measure of the variance of that specific price. A relatively low value indicates that the price does not fluctuate a great deal while a relatively higher value indicates that the price fluctuates a lot. The correlation is a calculated figure and provides the correlation of that specific price with the C201 price. It provides a measure of how changes in the specific price move with changes in the C201 price. A figure close to 1.000 is desired as that indicates that the two prices move in sync with each other. Tables 16, 17 and 18 below show a summary comparison of several hog prices from the various USDA daily reports for the period January 2, 2002 – September 15, 2006. Tables 16 and 17 include data for the National (i.e. 202, 203 and 200 reports), WCB, IAMN, and ECB regions. All prices are reported on a carcass basis (i.e. $US/cwt lean). Live basis prices are not reported due to the low volume of hogs that correspond with these prices (e.g. 461 to 6,079 average daily hog volume, depending on report). Average daily hog volumes associated with the various prices will be discussed in a later section as this is an important criteria in determining which price reports are most relevant. Table 16 includes weighted average prices for “negotiated” hogs by region. The trends show that for a particular region, prices increase as one moves from the Morning report to the Afternoon report to the Prior Day report. The difference in prices from the Morning to the Afternoon report range from $0.24-$0.33/cwt while the differences between the Afternoon and Prior Day reports range from $0.04-$0.17/cwt.

Table 16. Negotiated Weighted Average Prices (Carcass Basis) $US/cwt lean

Region Morning Report

Afternoon Report

Prior Day Report

National 58.57 58.89 59.06




Source: USDA Note: Time period is January 2, 2002 – September 15, 2006.



Table 17 shows weighted average prices for “swine or pork market formula” priced hogs by region. The trend in Table 17 is similar to that found in Table 16 which showed that for a particular region, prices increase as one moves from the Morning report to the Afternoon report to the Prior Day report. The price differences found in Table 17 are larger than those in Table 16. Differences in price from the Morning to the Afternoon report ranged from $0.22-$0.84/cwt while the differences between the Afternoon and Prior Day reports range from $1.28-$1.49/cwt. It is unknown why “swine/pork market formula” increases by a greater amount than the “negotiated” as the day progresses.

Table 17. Swine/Pork Market Formula Weighted Average Prices (Carcass Basis) $US/cwt lean


Afternoon Report

Prior Day Report

National 64.69 64.91 66.25




Source: USDA Note: Time period is April 5, 2004 – September 15, 2006.

Table 18 shows the National Cost (213 report) and Cutout (500 report) average prices. Both price reports are for the National region. The National Cost prices show that as % lean increases from the 49-50% level to the 51-52% level there is a price increase of $1.91/cwt. The price increase is $2.12/cwt when you increase from 51-52% lean to 53-54% lean. It should be noted that the Cutout average price is the estimated wholesale pork value for a 200 lb hog carcass with 53-54% lean. Prior to January 3, 2006, the Cutout price represented a 185 lb hog carcass with 51-52% lean. Table 18. National Cost (213 report) and Cutout Prices (Carcass Basis) $US/cwt lean

Report Price

National Cost (49-50%) 58.56



Cutout 64.58

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006 and Cutout prices are for 53-54% lean as of January 3, 2006. Prior to this date, prices are for 51-52% lean.

In summary, a key observation to highlight from the data presented above is that the average “negotiated” (carcass basis) prices and the average “swine or pork market formula” (carcass basis) prices all strengthen as the day advances.



Regardless of the report (i.e. National, ECB, WCB, or IAMN), average price increases as the day unfolds from Morning to Afternoon to Prior Day purchase.

6.4 A Comparison of Hog Prices - C201 Report Versus Other USDA Reports

To provide a clearer comparison of the various prices with the C201 price, tables 19 to 22 below, as well as several tables in Appendix Two show the average daily price spreads. Table 19 displays the average price difference between the C201 price and various regional “negotiated” prices. The price spread is calculated as the C201 price less the regional “negotiated” price. The % figure found below the price difference (i.e. the number in brackets) represents the % of time that the C201 price is higher than the regional price. The trends show that the C201 price is higher than the regional “negotiated” prices (e.g. ECB) from 88.9%-99.9% of the time. The average price spread ranged from $2.05-$3.10/cwt.

Table 19. Price Spreads, C201 Prices Versus Various Regional Negotiated

Weighted Average Prices (Carcass Basis) Region Morning

Report Afternoon

Report Prior Day

Report

National 2.731

(98.4%)2 2.43

(96.1%) 2.27

(94.0%)

Eastern Corn Belt 3.10 (99.9%)

2.81 (99.7%)

2.77 (98.9%)

Western Corn Belt 2.46 (93.6%)

2.22 (91.4%)

2.05 (89.1%)

Iowa-Minnesota 2.39 (92.2%)

2.10 (89.5%)

2.07 (88.9%)

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006; Price spread = C201 – specific price; 1$/cwt; 2%.

Table 20 shows the average price spread between the C201 price and the regional “swine or pork market formula” prices. The time period is for only April 5, 2004 – September 15, 2006. The trends show that the C201 price is higher than the regional prices nearly 100% of the time. The average price spread ranged from $1.86-$4.64/cwt.



Table 20. Price Spreads, C201 Prices Versus Various Regional Swine or Pork Market Formula Weighted Average Prices (Carcass Basis)


Afternoon Report

Prior Day Report

National 4.001

(98.0%)2 3.81

(100.0%) 2.47

(100.0%)

Eastern Corn Belt 4.19 (100.0%)

3.35 (100.0%)

1.86 (99.4%)

Western Corn Belt 4.50 (100.0%)

4.10 (100.0%)

2.80 (100.0%)

Iowa-Minnesota 4.64 (100.0%)

4.22 (100.0%)

2.89 (100.0%)

Source: USDA Note: Time period is April 5, 2004 – September 15, 2006; Price spread = C201 – specific price; 1$/cwt; 2%.

Table 21 shows the average price spreads for the C201 report by pricing category on both a carcass base price and average net price basis. Recall that the C201 price is calculated using average net prices for “negotiated” and “swine or pork market formula” categories. The price spread or difference is calculated as the C201 price less the specific pricing type found within the 201 report.

Table 21. Price Spreads, A Comparison of C201 and 201 Prices (Carcass Basis) $US/cwt Lean Pricing Category Carcass Base Price Average Net Price

Negotiated 2.121

(99.8%)2 0.70

(86.5%)

Swine or Pork Market Formula 2.54 (100.0%)

-0.21 (13.2%)

Other Market Formula 4.78 (75.4%)

1.79 (57.1%)

Other Purchase Arrangement 1.23 (68.1%)

-0.58 (56.0%)

Producer Sold (all types) 2.48 (95.6%)

0.09 (54.3%)

Packer Owned NA3 NA

Packer Sold (all types) 0.66 (58.4%)

-2.60 (9.5%)

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006; Price spread = C201 – specific price; 1$/cwt; 2%; 3NA = not applicable.

The trends show that the C201 price is higher than the carcass base price most of the time (i.e. 58.4%-100.0%). The average price spread ranged from $0.66-$4.78/cwt. This is not surprising given that the C201 price is a net price (i.e. has premiums and discounts included) not a base price as shown in column 2 of Table 21. The C201 price is lower than the “swine or pork market formula”, “other purchase arrangement”, and “packer sold” prices. The C201 is about the same as the “producer sold” (all types) category for the period. The C201 is higher than



the selected net prices from 9.5%-86.5% of the time and ranges from $1.79/cwt higher (“other market formula”) to $2.60/cwt lower (“packer sold”). The C201 price was $0.70/cwt higher on average than the “negotiated” category and was higher 86.5% of the time. It was $0.21/cwt lower than the “swine or pork market formula” category and was higher only 13.2% of the time. Table 22 shows both the average price spread and frequency of time (i.e. % of time the C201 is higher than the comparison price series) between the C201 price and the National Cost (213 report) and Cutout (500 report) prices. It should be pointed out that the % lean associated with the C201 price varies daily while the National Cost and Cutout prices are for a specific % lean. The trends show that the C201 price is higher than the National Cost prices for 49-50% and 51-52% lean prices but lower than the 53-54% lean and Cutout prices. The average price spread ranged from $2.75/cwt higher than the National Cost 49-50% to $3.24/cwt lower than the Cutout. The C201 price was higher than the 49-50% and 51-52% prices virtually all the time (i.e. close to 100% of the time), but never higher than the 53-54% price, and only higher than the Cutout price 13.1% of the time.

Table 22. Price Spreads, C201 Prices Versus National Cost and Cutout Prices

(Carcass Basis) $US/cwt lean Report Price


(100.0%)


(99.7%)

National Cost (53-54%) -1.27 (0.0%)

Cutout -3.24 (13.1%)

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006; Cutout Prices are for 53-54% lean as of January 3, 2006. Prior to this date, prices are for 51-52% lean; Price spread = C201 – specific price; 1$/cwt; 2%.

In summary, the C201 prices are generally higher than:

• “negotiated” (carcass basis) National and regional Morning, Afternoon, and Prior Day purchase prices (88.9%-99.9% of the time).

• “swine/pork market formula” (carcass basis) National and regional

Morning, Afternoon, and Prior Day purchase prices approximately 98%-100% of the time.

• the “213 report” by the following amounts: 49-50% base cost prices -

100% of the time, 51-52% prices - 99.7%, while being higher than 53-54% prices 0% of the time.



• “201 carcass” base prices anywhere from 58.4% of the time (“packer sold”) to 100% of the time (producer sold “swine or pork market formula”), depending on the pricing category.

• “201 average net prices” anywhere from 9.5% of the time (“packer

sold”) to 86.5% of the time (producer sold “negotiated”), depending on the pricing category.

• “500 Cutout” prices only 13.1% of the time.

6.5 Regional Price Spreads

The following section displays regional price spreads (i.e. compares National, ECB, WCB, and IAMN). Table 23 shows the average price spread between the regional average weighted prices for “negotiated” hogs. The table can be interpreted as the regional price in the left hand column less the regional price listed across the top of the columns. The top figure in each cell is the average price spread in $US/cwt lean while the % figure in brackets underneath is the % of the time that the price in the left hand column is higher than the price across the column top. For example, the first cell shows that the National price is $0.22/cwt less than the WCB price with the National price being higher than the WCB price only 32.7% of the time. The trends show that the WCB prices appear to be the highest on average, followed by IAMN, National and ECB. Negotiated (carcass basis) prices:

• at the National level, are higher than WCB prices 32.7% of the time • at the National level, are higher than ECB prices 66.6% of the time • at the National level, are higher than IAMN prices 34.7% of the time • at the IAMN level, are higher than WCB prices 45.9% of the time • at the IAMN level, are higher than ECB prices 66.1% of the time • at the ECB level, are higher than WCB prices 33.2% of the time

The average price spreads between regions ranged from $0.70/cwt between IAMN and ECB prices to -$0.72/cwt between ECB and WCB prices.



Table 23. Price Spread Using Negotiated Weighted Average Prices (Carcass Basis) $US/cwt lean

Region Western Corn Belt Eastern Corn Belt Iowa-Minnesota

National -0.221

(32.7%)2 0.50

(66.6%) -0.20

(34.7%)

Iowa-Minnesota -0.02 (45.9%)

0.70 (66.1%) NA3

Eastern Corn Belt -0.72 (33.2%) NA NA

Western Corn Belt NA NA NA

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006; Price spread = region in left hand column – region across top row; 1$/cwt; 2%; 3NA – not applicable.

Table 24 shows the average price spread between the regional average weighted prices for “swine or pork market formula” hogs. The time period is for only April 5, 2004 to September 15, 2006. The table can be interpreted similar to Table 23. The trends show that the ECB prices appear to be the highest on average, followed by National, WCB and IAMN. Swine/pork market formula (carcass basis) prices:

• at the National level, are higher than WCB price 97.0% of the time • at the National level, are higher than ECB prices 5.9% of the time • at the National level, are higher than IAMN prices 96.8% of the time • at the IAMN level, are higher than WCB prices 21.5% of the time • at the IAMN level, are higher than ECB prices 4.2% of the time • at the ECB level, are higher than WCB prices 95.0% of the time

The average price spreads between regions ranged from $0.95/cwt between ECB and WCB prices to -$1.03/cwt between IAMN and ECB prices.

Table 24. Price Spread Using Swine/Pork Market Formula Weighted Average Prices (Carcass Basis) $US/cwt lean

Region Western Corn Belt Eastern Corn Belt Iowa-Minnesota

National 0.351

(97.0%)2 -0.60

(5.9%) 0.43

(96.8%)

Iowa-Minnesota -0.08 (21.5%)

-1.03 (4.2%) NA3

Eastern Corn Belt 0.95 (95.0%) NA NA

Western Corn Belt NA NA NA

Source: USDA Note: Time period is April 5, 2004 – September 15, 2006; Price spread = region in left hand column – region across top row; 1$/cwt; 2%; 3NA = not applicable.



Table 25 shows the average annual price spread between the Cutout (500 report) and the C201 and selected 213 report prices for the 2002-2006 period. The price spread is calculated as the Cutout (or 500) price less the specific price. Recall, that the C201 price has a % lean that varies while the Cutout and 213 (Combination) price series are for a 53-54% lean price as of January 3, 2006. Prior to this date, prices were for a 51-52% lean hog. The trends show that price spreads appear to have decreased annually from one year to the next from 2002-2005 but have since increased through the first few months of 2006. The average price spread over the entire period has ranged from the Cutout being an average of $1.97/cwt higher than the 213 (53-54%) price to $4.09/cwt higher than the 213 (51-52%) price. The Cutout price was higher 74.7% - 90.6% of the time, depending on the price series.

Table 25. Annual Price Spreads Between Cutout Values and the Price Series of

C201 and National Cost (Carcass Basis) $US/cwt lean Constructed 201 213 (51-52%) 213 (53-54%) 213 (Combination)

2002 5.31 6.52 4.41 6.52

2003 4.43 5.44 3.30 5.44

2004 1.79 2.50 0.35 2.50

2005 1.53 2.15 0.02 2.15

2006 3.11 3.75 1.68 1.68

All 3.24 (86.9%)

4.09 (90.6%)

1.97 (74.7%)

3.78 (88.5%)

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006. Cutout Prices and 213 (Combination) Prices are for 53-54% lean as of January 3, 2006. Prior to this date, prices are for 51-52% lean; Price spread = Cutout – specific price.

In summary, from the regional price spread analysis the following comments can be made:

i) for “negotiated” (carcass basis) prices:

• The trends show that on average, the WCB is the highest price followed by IAMN, National and ECB.

ii) for “swine/pork market formula” (carcass basis) prices:

• The trends show that on average, the ECB is the highest price followed by National, WCB and IAMN.

iii) for Cutout prices:

• The trends here show that on average, Cutout prices are higher than the C201 and 213 prices.



6.6 Comparison of U.S. Hog Volumes by Regional Price Report

It is important to look at corresponding average daily and total hog volumes associated with the various hog pricing reports to determine how reliable specific prices are. Tables 26 – 28 show average daily hog volumes for some of the price report series discussed in the previous section. Table 26 shows the associated average daily hog volume with the “negotiated” prices from the regional reports. Obviously the largest volumes are on the National reports. The next largest volume reports are for WCB, IAMN and ECB. Again, volumes increase from Morning to Afternoon, and from Afternoon to Prior Day reports. Table 26. Negotiated Daily Hog Volumes (Carcass Basis)


Afternoon Report

Prior Day Report

National 8,666 25,090 31,893

Eastern Corn Belt 3,777 9,375 10,799

Western Corn Belt 4,810 15,436 21,062

Iowa-Minnesota 3,779 11,502 17,568

Source: USDA Note: Time period is January 2, 2002 – September 15, 2006

Table 27 shows the associated average daily hog volume with the “swine or pork market formula” prices from the regional reports. The period covered in the table is from April 5, 2004 – September 15, 2006 only. Again, the largest volumes are on the National reports. The next largest volume reports are for WCB, IAMN and ECB. Note that volumes increase as the day progresses. Volumes associated with these prices range from 2-8 times larger than those for “negotiated” prices in Table 26.

Table 27. Swine or Pork Market Formula Daily Hog Volumes (Carcass Basis)


Afternoon Report

Prior Day Report

National 45,239 77,641 145,845

Eastern Corn Belt 12,368 22,457 42,997

Western Corn Belt 33,634 50,774 99,404

Iowa-Minnesota 25,838 39,223 83,192

Source: USDA Note: Time period is April 5, 2004 – September 15, 2006



Table 28 shows the associated average daily hog volume with the various purchase categories from the 201 report. The largest volume category is the “swine or pork market formula”. The C201 has a volume that is significantly higher than any of the report volumes shown in Tables 26 and 27 above.

Table 28. Daily Hog Volume, 201 Report (Carcass Basis)

Purchase Category Volume Negotiated 43,617

Swine or Pork Market Formula 146,053

Other Market Formula 31,328

Other Purchase Arrangement 59,546

Producer Sold (all types) 280,543

Packer Owned 69,849

Packer Sold (all types) 10,101

Constructed 201 (C201) 189,670 Source: USDA Note: Time period is January 2, 2002 – September 15, 2006

The average daily volume for the National Cost report between January 2, 2002 and September 15, 2006 is 169,488. The Cutout report has thin pork volume associated with the report (i.e. about 3.5% of total U.S. pork slaughter). For the most part, this has been the case since it’s inception. Key observations from the hog volume analysis include:

• average daily hog volumes and total hog volumes would indicate that most

hogs are sold on a “swine or pork market formula” pricing arrangement for the National and regional Morning, Afternoon, and Prior Day purchases reports.

• hog volumes increase as you go from Morning to Afternoon to Prior Day

purchases reports for the various regions, regardless of which price category you are looking at.

• “swine or pork market formula” (carcass basis) prices have larger hog

volumes associated with them than negotiated (carcass basis) prices.

• 213 National Cost report has an average daily hog volume greater than any of the regional reports, with the exception of the total volume in the 200 National Prior Day Purchases report.

• the largest total hog volume report is the 201 report with the largest hog

volumes being in the producer sold “swine or pork market formula” category.



6.7 Comparison of Weekly Hog Prices Between Ontario and Other Provinces (2002 to 2006)

This section contains analysis for Canadian hog prices only. The prices are weekly and cover the period January 4, 2002 – September 15, 2006. Prices in Canada are generally calculated from a U.S. reference price and then converted to $C/kg dressed, index 100 basis. Ontario and Quebec use the 201 report while provinces in Western Canada generally use WCB or IAMN based reports. Because the C$/US$ exchange rate factors into the conversion from a U.S. price to a Canadian price, the impact of exchange rate on Canadian hog and wholesale pork prices has changed drastically over the period. This analysis removes the impact of exchange rate to compare only prices within Canada not between Canada and the U.S.. Table 29 includes hog prices for Ontario, Quebec, Manitoba, and estimates for a Canadian Cutout (wholesale pork value). These three provinces are compared since they are the three largest provinces based on pig production. The method for calculating the estimated Canadian Cutout value will be discussed in a later section. Caution must be exercised when using the Manitoba price because it is unknown how it actually compares to what producers receive (i.e. the Manitoba price is a derived formula price, not what processors actually paid). Table 29 provides data on averages, standard deviations, low, high, count (number of observations), coefficients of variation (CV), and correlation coefficients. The price that is used to compare all other Canadian prices to, is the Ontario standard contract price (i.e. Ontario std contract in the table below). Therefore, correlation figures relate to the correlation between the Ontario standard contract price and the specific price (i.e. Ontario Pool, Quebec AWP, etc.).



Table 29. Canadian Weekly Price Comparison, 2002-2006 ($C/ckg dressed, index 100)

Average St Dev Low High Count CV Correlation

Ontario Pool 143.32 20.69 95.48 207.84 246 14.4% 0.9487

Ontario Pool Plus 146.41 20.88 97.07 205.26 246 14.3% 0.9912

Ontario Std Contract 147.25 21.23 97.69 208.89 246 14.4% 1.0000

Quebec AWP1 148.32 22.02 89.04 212.32 246 14.8% 0.9481

Quebec Contract 151.99 24.55 88.78 228.70 228 16.2% 0.9136

Quebec Pre-Allocation 148.81 22.09 87.68 211.83 228 14.8% 0.9828

Quebec Auction 147.73 26.40 91.36 220.35 246 17.9% 0.6972

Manitoba2 148.08 18.53 105.83 202.45 244 12.5% 0.9815

Canadian Cutout ($C/head) 158.35 16.50 127.01 223.81 246 10.4% 0.9190

Source: AAFC Red Meat Section Reports, Ontario Pork, FPPQ, MAFRI, Ronald A. Chisholm Ltd. Note: Time period is for weeks ending January 4, 2002 - September 15, 2006. Correlation is with Ontario Std Contract price. Canadian Cutout is calculated using weekly wholesale prices from Ronald A. Chisholm Ltd. Canadian Cutout is $C value per head, not $C/ckg dressed, index 100. 1AWP = Average Weighted Price; 2Refers to Manitoba Agriculture Food and Rural Initiatives estimated 100 index price.

Key observations from Table 29 include:

• all prices are highly correlated with the Ontario standard contract price (i.e. most correlation factors fall in the 0.9136-0.9912 range); the exception is the Quebec auction price which has a correlation of 0.6972.

• all prices have a large range between the lowest price for the period to the

highest price for the period. Average hog prices have generally been in the $143-$152 range with a standard deviation of $20-$26/ckg.

• the Cutout has averaged approximately $158/hd with a standard deviation

of $16-$17/hd.

• highest average hog price was the Quebec contract while lowest average hog price was Ontario Pool.

• Ontario standard contract prices were on average higher than Ontario pool

and pool plus prices but lower than Quebec and Manitoba prices.

• Table 30 shows the average annual prices for the same provincial pricing series as in Table 29, only on a yearly basis. The Ontario standard contract price is higher than the Quebec average weighted price (AWP) in 2003 and 2006 but only higher than the Manitoba price in 2004.



Table 30. Canadian Weekly Price Comparison, 2002-2006 ($C/ckg dressed, index 100)

2002 2003 2004 2005 2006 All

Ontario Pool 138.01 134.77 161.01 147.97 130.95 143.32

Ontario Pool Plus 140.49 139.49 166.74 148.76 132.06 146.41

Ontario Std Contract 140.20 139.91 169.68 149.53 132.18 147.25

Quebec AWP1 140.74 138.06 172.64 154.42 129.95 148.32

Quebec Contract 145.61 142.99 179.39 156.88 129.45 151.99

Quebec Pre-Allocation 136.42 139.43 174.09 155.08 135.76 148.81

Quebec Auction 145.63 135.31 173.61 155.68 119.88 147.73

Manitoba2 140.62 143.26 166.49 150.44 136.00 148.08

Canadian Cutout ($C/head) 156.03 153.90 177.14 156.61 143.41 158.35


Table 31 shows the average price spread over the period between the Ontario standard contract and the other prices from Table 29. The “% of Time Higher” column is the % of the time that the Ontario standard contact price is higher than the specified price. “Avg. Rank” column is the average rank of the price over the period compared to all other prices (i.e. rank of 1 means price is highest). The column “St. Dev. Rank” is the standard deviation of the rank while “highest rank” and “lowest rank” are the highest and lowest weekly ranks that price received during the time period.



Table 31. Canadian Weekly Price Spread Comparison Versus Ontario Standard Contract, 2002-2006 ($C/ckg dressed, index 100)

Average St Dev Low High Count % of Time

Higher Avg Rank StDev Rank

Highest Rank

Lowest Rank

Ontario Pool 3.93 6.73 -9.70 29.04 246 66.7% 6.6 1.9 1 8

Ontario Pool Plus 0.84 2.82 -9.23 13.14 246 54.9% 5.4 2.2 1 8

Ontario Std Contract NA1 NA NA NA NA NA 5.0 2.4 1 8

Quebec AWP1 -1.06 7.01 -20.33 14.61 246 43.5% 4.0 1.7 1 7

Quebec Contract -3.69 10.05 -35.82 17.33 228 46.1% 4.0 2.6 1 8

Quebec Pre-Allocation -0.51 4.10 -8.42 12.34 228 38.2% 4.6 2.8 1 8

Quebec Auction -0.47 19.14 -60.46 44.70 246 46.7% 4.7 3.5 1 8

Manitoba2 -0.74 4.67 -12.82 14.32 244 42.2% 4.3 2.6 1 8

Canadian Cutout ($C/head) -11.07 8.91 -33.67 8.82 245 12.2% NA NA NA NA Source: AAFC Red Meat Section Reports, Ontario Pork, FPPQ, MAFRI, Ronald A. Chisholm Ltd. Note: Time period is for weeks ending January 4, 2002 - September 15, 2006. Correlation is with Ontario Std Contract price. Canadian Cutout is calculated using weekly wholesale prices from Ronald A. Chisholm Ltd. Canadian Cutout is $C value per head, not $C/ckg dressed, index 100. 1AWP = Average Weighted Price; 2Refers to Manitoba Agriculture Food and Rural Initiatives estimated 100 index price. 1NA = not available.



The Ontario standard contract price has averaged about $1.06 lower than the Quebec AWP and about $0.74 lower than Manitoba over the time period. It has been higher than the Quebec AWP about 43.5% of the time and higher than Manitoba about 42.2% of the time. The average rank for Ontario prices were 5.0 out of 8 for standard contract while pool prices ranked 6.6 and pool plus prices ranked 5.4. In a given week, each of the Ontario prices ranked anywhere from a high of 1 to a low of 8, out of a total of 8 prices that were ranked. The estimated Canadian Cutout value was not included in the ranking of hog prices since it is not a hog price. Table 32 shows the same data as in Table 31 only on an average annual basis. For the year-to-date 2006, the Ontario standard contract price is $2.23 higher than the Quebec AWP but $3.82 lower than the Manitoba price.

Table 32. Canadian Weekly Price Spread Comparison Versus Ontario Standard Contract Performed on a Yearly Basis, 2002-2006 ($C/ckg dressed, index 100)

2002 2003 2004 2005 2006 All Ontario Pool 2.19 5.13 8.67 1.56 1.23 3.93

Ontario Pool Plus -0.30 0.42 2.94 0.77 0.12 0.84

Ontario Std Contract NA NA NA NA NA NA

Quebec AWP1 -0.54 1.84 -2.96 -4.89 2.23 -1.06

Quebec Contract -5.31 -1.67 -6.77 -5.99 2.93 -3.69

Quebec Pre-Allocation 3.87 1.89 -1.46 -4.18 -3.38 -0.51

Quebec Auction -5.44 4.60 -3.93 -6.15 12.30 -0.47

Manitoba2 -0.42 -2.92 3.43 -0.91 -3.82 -0.74

Canadian Cutout ($C/head) -15.83 -13.99 -7.28 -7.08 -11.23 -11.07


6.8 Importance of Quebec Prices

The importance of comparing Quebec prices to Ontario is made apparent by looking at Figure 7 which shows Ontario weekly hog marketings compared to Ontario weekly hog slaughter for the period January 4, 2002 – September 15, 2006. During the entire period, marketings have exceeded slaughter and as one would expect, because of this, Ontario exports market hogs to both Quebec and the U.S..



Weekly Ontario Hog Marketings and Slaughter,2002-2006

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Figure 7 Table 33 provides a summary of Quebec hog prices and volumes by pricing category. Quebec also uses the 201 report for it’s reference price. Quebec has three pricing categories: contract, pre-allocation, and auction. The three together generate an average weighted price. The largest hog volume is sold through the pre-allocation channel. The average Quebec prices, regardless of pricing type, are all highly correlated with the Ontario standard contract price and are all higher than the average Ontario standard contract, pool, and pool plus prices for the same period (Table 29). Table 33. Quebec Weekly Price Comparison, 2002-2006 ($C/ckg dressed, index 100)

Average St Dev Low High Count

Weekly Hog

Volume Total Hog Volume CV

Contract $151.99 $24.55 $88.78 $228.70 228 31,282 7,132,204 16.2%

Pre-Allocation $148.81 $22.09 $87.68 $211.83 228 69,415 15,826,547 14.8%

Auction $147.73 $26.40 $91.36 $220.35 246 42,377 10,424,738 17.9%

Average Weighted Price $148.32 $22.02 $89.04 $212.32 246 135,705 33,383,489 14.8%

Index 109.47 0.45 108.12 110.61 246 0.4% Source: FPPQ Note: Time period is from January 5, 2002 to September 16, 2006.



6.9 Ontario Hog Prices as a Percent of Base Formula Price

When looking at Ontario prices during the 2002-2006 period, it would be interesting to see how standard contract, pool and pool plus prices have compared to the weekly 100% formula price used in Ontario as the base price. Recall that the base price is generated using the C201 price. Table 34 shows this comparison of the prices as a % of the base price. The % is calculated as the price (i.e. standard contract, pool, or pool plus) divided by the 100% formula price. The Ontario Standard Contract (Previous Week’s 100% Formula) calculation divides the current weekly standard contract price with the previous week’s 100% formula price. The reason for using the previous week’s formula price is that many contracts in Ontario use the previous week’s formula price for the current week’s price.

Table 34. Weekly Price Comparison Versus Ontario 100% Formula Price, 2002-2006

Average St Dev Low High Count CV % of Time

> 100% Ontario Standard Contract (Previous Week's 100% Formula) 2002 102.6% 1.3% 97.4% 106.4% 52 1.2% 96.2% 2003 101.9% 2.3% 95.3% 108.8% 52 2.2% 80.8% 2004 101.4% 2.2% 96.1% 106.3% 53 2.2% 75.5% 2005 99.8% 2.2% 94.4% 104.2% 52 2.2% 40.4% 2006 99.9% 2.5% 94.5% 106.3% 37 2.5% 43.2% All 101.2% 2.4% 94.4% 108.8% 246 2.3% 68.7% Ontario Pool 2002 101.3% 3.8% 91.6% 109.0% 52 3.7% 59.6% 2003 98.1% 4.3% 89.9% 106.4% 52 4.4% 34.6% 2004 96.0% 5.1% 82.8% 102.8% 53 5.4% 22.6% 2005 98.9% 2.6% 93.3% 104.8% 52 2.6% 34.6% 2006 98.7% 2.4% 93.4% 103.2% 37 2.4% 32.4% All 98.6% 4.2% 82.8% 109.0% 246 4.3% 37.0% Ontario Pool Plus 2002 103.2% 4.8% 94.0% 119.6% 52 4.7% 73.1% 2003 101.6% 3.2% 95.7% 108.4% 52 3.2% 67.3% 2004 99.3% 2.5% 91.9% 104.4% 53 2.5% 41.5% 2005 99.5% 1.3% 96.9% 103.0% 52 1.3% 30.8% 2006 99.4% 1.6% 96.2% 102.3% 37 1.6% 40.5% All 100.7% 3.4% 91.9% 119.6% 246 3.4% 51.2% Source: Ontario Pork Note: Time period is for weeks ending January 4, 2002 - September 15, 2006

The main point to observe from Table 34 is that the trend for all prices seems to be decreasing as a % of the 100% formula price. Prices were generally highest in 2002, and then started to decline in 2003 and 2004. This decline continued in 2005 for standard contract prices but prices for pool and pool plus hogs started to increase in 2005 and 2006.



It should be noted that recently in 2006, Ontario processors have begun offering new contracts at 101% of the formula price after having new contracts pegged at 100% of the formula price since about the fall of 2003. Prior to the fall of 2003, contracts generally were 102-103% of the formula price. A possible reason for why Ontario prices decreased relative to the 100% base formula price is that Ontario marketings have exceeded Ontario slaughter capacity, thus Ontario is forced to export hogs to Quebec and the U.S.. Therefore, after accounting for transportation and other expenses related to exporting hogs outside Ontario, the net price received may be lower than prices for hogs sold to Ontario processors.

6.10 Canadian Cutout Estimate and Spread Versus Ontario and Quebec Hog

Prices

An estimated Canadian Cutout value was generated using wholesale pork prices from Ronald A. Chisholm Ltd.. In 1992, a carcass Cutout study was done for the Canadian pork industry and found the following average Cutout breakdown for a hog carcass:

Ham Yield 27.56% Loin Yield 24.70% Butt Yield 12.63% Picnic Yield 11.33% Side Ribs Yield 4.83% Belly Yield 18.95% Total Cutout 100.00%

The Total % Lean Yield was found to average out at 59.76% (i.e. % of liveweight). Chisholm prices are reported weekly for various pork primals and cuts on a $/kg basis. Using the estimated carcass breakdown and the prices, a Cutout value can be estimated in $/kg. Then, using the % Lean Yield of 59.76% and average annual Ontario Pork dress weights (converted to live by assuming 80% dress factor), a Cutout value per hog can be estimated. For example, using price data from the week ending December 30, 2005 and the following assumptions:

• Cutout value = $2.03/kg • 2005 annual average carcass weight = 91.10 kg • Then the Cutout estimate ($/head) would be approximately • $2.03/kg x (91.10 kg / 0.8) x 59.76% = $138.14 per head

Table 35 shows the estimated weekly Canadian Cutout values using average annual carcass weights from Ontario Pork’s data and a % lean yield of 59.76% in the calculation above.



Table 35. Weekly Canadian Cutout Estimate, 2002-2006

Average St Dev Low High Count CV

$C/head

2002 156.03 13.09 127.01 181.63 52 8.4%

2003 153.90 7.59 139.83 170.97 52 4.9%

2004 177.14 18.34 139.15 223.81 53 10.4%

2005 156.61 11.16 135.94 182.64 52 7.1%

2006 143.41 8.77 128.53 156.68 37 6.1%

All 158.35 16.50 127.01 223.81 246 10.4%

$C/kg 2002 2.33 0.20 1.90 2.71 52 8.4%

2003 2.28 0.11 2.08 2.54 52 4.9%

2004 2.63 0.27 2.06 3.32 53 10.4%

2005 2.30 0.16 2.00 2.68 52 7.1%

2006 2.10 0.13 1.88 2.29 37 6.1%

All 2.34 0.25 1.88 3.32 246 10.6%

Source: Ontario Pork, Ronald A. Chisholm Ltd. Note: Time period is for weeks ending January 4, 2002 - September 15, 2006

Table 35 shows that the estimated Cutout has fluctuated a great deal from year to year, similar to hog prices. The values decreased from 2002 to 2003, increased in 2004, but then decreased again in 2005 and 2006 year-to-date. The CVs which are a measure of variability in the values range from 5-10%. Compared to the CVs for Canadian hog prices which are in the 14-18% range, the estimated Cutout values are relatively more stable and experience less fluctuation. The estimated Cutout values for the entire time period are in the $158/hd range. Compared to Canadian hog prices which were in the $143-152 range, there is not a lot of margin left for pork processors to cover all other processing costs (e.g. labour, overhead, transportation, etc.). Still some caution must be exercised here since there has been no attempt to account for revenue from rendering and other pig byproducts (i.e. offal, ears, feet, and etc.) Table 36 shows the estimated price spread between Canadian Cutout values and the Ontario standard contract and Quebec AWP hog prices over the same time period. This spread is the difference between the estimated wholesale value of the pork Cutout (primal pork cuts value) less the hog cost for the processor. This spread would be expected to cover all other processing costs (e.g. labour, electricity, taxes, water, and etc.). The spread is calculated as follows:

Spread = (pork Cutout) - (hog price x average annual dress weight x average annual index)

The $/kg values in the table are simply the spread between the Cutout and the specific hog price on a $/kg basis with no adjustment for carcass weight or index.



Table 36. Weekly Spread Comparison Versus Canadian Cutout, 2002-2006

Average St Dev Low High Count CV % of Time

Cutout Higher Ontario Standard Contract Hog Value ($C/head) 2002 19.53 9.07 0.14 36.25 52 46.5% 100.0%

2003 16.51 9.46 -5.79 31.66 52 57.3% 90.4%

2004 9.63 8.98 -5.24 26.81 53 93.3% 84.9%

2005 7.69 4.96 0.29 19.01 52 64.6% 100.0% 2006 11.01 6.02 -8.25 21.93 37 54.7% 94.6% All 12.97 9.17 -8.25 36.25 246 70.7% 93.9%

Quebec AWP Hog Value ($C/head) 2002 17.79 8.31 3.23 39.55 52 46.7% 100.0% 2003 17.73 8.03 1.25 41.55 52 45.3% 100.0% 2004 6.62 7.26 -5.03 24.96 53 109.6% 77.4% 2005 2.80 6.62 -9.37 24.72 52 236.6% 65.4% 2006 12.78 5.18 4.36 26.39 37 40.6% 100.0% All 11.45 9.49 -9.37 41.55 246 82.9% 87.8%

Ontario Standard Contract Price ($/kg) 2002 0.93 0.10 0.73 1.10 52 10.7% 100.0% 2003 0.89 0.09 0.69 1.08 52 10.1% 100.0% 2004 0.93 0.10 0.75 1.31 53 10.9% 100.0% 2005 0.81 0.07 0.68 0.96 52 9.0% 100.0% 2006 0.77 0.04 0.64 0.86 37 5.7% 100.0% All 0.87 0.11 0.64 1.31 246 12.1% 100.0%

Quebec AWP ($/kg) 2002 0.92 0.08 0.73 1.09 52 8.2% 100.0% 2003 0.90 0.08 0.76 1.19 52 9.1% 100.0% 2004 0.90 0.10 0.73 1.19 53 11.1% 100.0% 2005 0.76 0.07 0.64 1.02 52 9.3% 100.0% 2006 0.80 0.07 0.69 0.99 37 8.3% 100.0% All 0.86 0.10 0.64 1.19 246 12.1% 100.0%

Source: Ontario Pork, FPPQ, Ronald A. Chisholm Ltd. Note: Time period is for weeks ending January 4, 2002 - September 15, 2006. For Ontario, the average annual carcass weight and index are used. For Quebec, Ontario average annual carcass weight and FPPQ average annual index are used.

Table 36 is generated by using the annual average hog index in both Ontario and Quebec and the average annual Ontario carcass weight. In Ontario, the spread (on a $C/head basis) decreased from 2002 to 2005 and increased in 2006. However, the spread versus Quebec prices was similar in 2002 and 2003, but decreased in 2004 and 2005, while increasing again in 2006. For the entire period, the estimated spreads averaged about $11-13/head.



6.11 Estimated Cost of Production and Margins for Producers and Processors

As was mentioned in the previous section, the estimated spread between Cutout and hog prices in Ontario was approximately $13/head during the 2002-2006 period. It would be interesting to estimate cost of production (COP) for both Ontario pork processors and hog producers to compare how the two groups have fared. Table 37 presents this comparison of estimated margins on a $C/head basis. The following is a brief description of how the estimated margins are calculated in Table 37. i) Ontario Producer Margin

The estimated margin for an Ontario hog producer during this time period was calculated as:

• Margin = (weekly Ontario standard contract price less Ontario cost of production) x average annual dress weight x average annual index.

Note that the weekly Ontario standard contract price and Ontario cost of production are both on a $C/ckg dressed, index 100 basis and therefore are adjusted by average dress weight and index. COP is the average annual COP from OMAFRA Swine Enterprise Budgets on a $/100 kg dressed, index 100 basis. Average hog producer revenue is based on average annual dress weights and indexes.

ii) Ontario Processor Margin (Cutout + Byproduct) - (Hog Cost)

The estimated margin for an Ontario processor based on total revenue from the hog carcass less only the cost of the hog during this time period was calculated as:

• Margin = (processor revenue from Cutout + byproduct values) - (hog cost)

The estimated byproduct value is calculated using prices from Ronald A. Chisholm Ltd. and estimated byproduct yields from industry sources. Estimated hog cost assumes the Ontario standard contract price adjusted for average dress weight and index.

iii) Ontario Processor Margin (Cutout + Byproduct) - (Hog Cost + FOB +

Labour)

This calculation looks at the estimated spread between the wholesale value of the hog and the total hog cost plus processing labour. It was calculated as:



• Margin = (processor revenue from Cutout + byproduct values) - (labour + hog cost + hog FOB)

Approximate costs for labour and hog FOB were obtained from industry sources. It assumes processing labour costs of approximately $0.23/kg of pork processed and $0.02/kg hog FOB, as well as estimated byproduct value of $5-11/head (depending on weekly byproduct prices) on the processor revenue side.

It is estimated that hog producers averaged about $1.75/hog profit. When the estimated Ontario Processor Margin is observed, it shows an average loss for processors of $2.10/hog during the period (note: the estimated processor labour cost used was approximately $21/hog). Producers had a profit 55% of the time while processors had a profit about 40% of the time. Producers made profits in 2004 and 2005 while processors only made profits in 2002-2003 but have lost money since. It should be noted that during this time exchange rate has greatly impacted margins for both Ontario hog producers and processors on the revenue side of things. It should also be pointed out that the spreads and margins calculated for both producers and processors are estimates only to give a general relative comparison between the two sectors.



Table 37. Weekly Margin Comparison, Producer vs Processor, 2002-2006

Average St Dev Low High Count % of Time + Ontario Producer Margin ($C/head) 2002 -10.82 17.50 -52.21 18.24 52 34.6%

2003 -14.65 14.20 -37.85 13.51 52 23.1%

2004 20.40 23.06 -34.06 59.10 53 84.9%

2005 12.44 12.11 -12.02 36.14 52 80.8% 2006 0.72 13.62 -19.73 32.15 37 48.6% All 1.75 21.60 -52.21 59.10 246 54.9% Ontario Processor Margin = (Cutout + Byproduct) - (Hog Cost) ($C/head)

2002 25.50 9.39 5.12 41.09 52 100.0% 2003 23.55 10.02 0.52 39.59 52 100.0% 2004 19.42 8.11 5.30 36.65 53 100.0% 2005 16.54 4.92 8.41 28.38 52 100.0% 2006 18.46 5.88 -0.79 29.10 37 97.3% All 20.83 8.64 -0.79 41.09 246 99.6% Ontario Processor Margin = (Cutout + Byproduct) - (Hog Cost + FOB + Labour) ($C/head) 2002 2.80 9.39 -17.57 18.40 52 71.2% 2003 0.70 10.02 -22.32 16.75 52 59.6% 2004 -3.45 8.11 -17.57 13.77 53 32.1% 2005 -6.54 4.92 -14.66 5.31 52 11.5% 2006 -4.74 5.88 -24.00 5.89 37 21.6% All -2.10 8.70 -24.00 18.40 246 40.2%

Canadian Cutout - Ontario Standard Contract Hog Value ($C/head)

2002 19.53 9.07 0.14 36.25 52 100.0% 2003 16.51 9.46 -5.79 31.66 52 90.4% 2004 9.63 8.98 -5.24 26.81 53 84.9% 2005 7.69 4.96 0.29 19.01 52 100.0% 2006 11.01 6.02 -8.25 21.93 37 94.6% All 12.97 9.17 -8.25 36.25 246 93.9%

Canadian Cutout - Ontario Standard Contract ($C/kg)

2002 0.93 0.10 0.73 1.10 52 100.0% 2003 0.89 0.09 0.69 1.08 52 100.0% 2004 0.93 0.10 0.75 1.31 53 100.0% 2005 0.81 0.07 0.68 0.96 52 100.0% 2006 0.77 0.04 0.64 0.86 37 100.0% All 0.87 0.11 0.64 1.31 246 100.0%

Source: Ontario Pork, Ronald A. Chisholm Ltd., OMAFRA Pork News & Views Note: Time period is for weeks ending January 4, 2002 - September 15, 2006. For the producer COP, the average annual cost was used. Also, the average Ontario annual carcass weight and index were used in the calculations.



Producer/Processor Estimated Margins, 2002-2006

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Figure 8 shows some of the results from Table 37 in figure form. The trends show that estimated producer margins tend to be more variable than estimated processor spreads and margins.

Figure 8

6.12 Summary of Analysis Section

Some of the key findings from the analysis section are as follows:

i) The 201 report continues to be the USDA’s most important price report due to the large volume of hogs it records and the fact that actual prices paid for slaughter hogs are reported.

ii) The hog pricing category “negotiated” has suffered from declining hog

volumes the last several years, but recently the downward trend has stabilized at about 10% of the U.S. hog volume.

iii) “Negotiated” (carcass basis) prices in the various regional reports

(National, WCB, IAMN, ECB) generally show a trend of increasing volume and prices as you move from Morning to Afternoon to Prior Day purchases reports.



iv) The highest priced regions for the price category “negotiated” (carcass basis) in order from highest to lowest are WCB, IAMN, National, and ECB. In some instances “negotiated” (live basis) prices seem to be higher than carcass basis prices but hog volumes associated with this price category are very thin.

v) Ontario hog prices (i.e. pool, pool plus, and standard contract) tend to be

the lowest when compared with the provinces of Quebec and Manitoba. When Ontario hog prices are compared to other provinces, the ranking is Quebec (average weighted price) – $C148.32/ckg, Manitoba - $C148.08/ckg, followed by Ontario (standard contract) - $C147.25/ckg. On a weekly basis, the Ontario Standard Contract was higher than the Quebec AWP 43.5% of time and higher than the Manitoba price 42.2% of the time.

vi) Canadian Cutout values are less variable but show similar trends as

Canadian hog prices. Price spreads between Cutout + byproduct values and hog values don’t appear to be large enough to cover other processing costs.

vii) Estimated revenue, cost of production, and margin calculations show that

producer margins are more variable than processors. However, during the 2002-2006 period, producers had profits approximately 55% of the time while processors were in the black only 40% of the time.



7.0 SUMMARY AND CONCLUSIONS

Hog pricing in the United States has changed rapidly in the last decade moving from personal negotiations where animals were sold on a live weight basis to the current situation of using marketing contracts and formula pricing off a USDA released price series on a carcass weight basis. There are many reasons for why this change in pricing has occurred and they include:

i) reduced transaction costs – the cost of negotiating a price and terms of

trade for every truckload of hogs produced can be significant; ii) supply and price assurance – many packing plants slaughter in excess of

16,000 hogs/day thus there is a need to ensure supply and have some stability in pricing;

iii) reduce the amount of uncertainty and complexity - the U.S. industry has

moved to a more vertically coordinated system caused by the need for greater traceability, the need for more precise product specifications, and to incorporate new technology such as 3 site production. The use of a formula price allows for large volumes of animals to be settled in an easy, defensible manner.

Hog prices in Canada are for the most part formula priced off the U.S. marketplace each day and adjusted to Canadian conditions. This method of developing an Ontario price has worked well given that there are few processors left in Ontario (i.e. Maple Leaf, Quality Meats, and Conestoga Meat Packers account for about 90% of Ontario’s slaughter capacity) and that both pigs and pork are traded across the border. Typical adjustments include exchange rate, dressing %, index, and metric conversion. Currently, Ontario Pork uses the C201 Price (i.e. based on the USDA’s 201 report which contains about 91% of the total U.S. federally inspected hog slaughter) as the reference price for it’s formula price. The C201 price uses data from the two marketing categories of “negotiated” and “swine or pork market formula”. From conducting this hog pricing study the following comments can be made:

i) The evidence presented in the various sections leaves little doubt that the

C201 is the best price series for Ontario to use when developing a base price. This price series remains accurate, reliable, and representative of hog prices paid by the large U.S. packers. While there are several other reports that could be used (e.g. ECB, WCB, IAMN, carcass Cutout), each one of these has the potential to suffer from time of day bias, regional bias, and packer distortion or thin markets when compared to the C201 price. The participants in the 201 report (and therefore the C201 as well) are subject to public audit and the data is viewed as reflective of hog prices paid in the United States. These comments were received consistently



from all information sources (i.e. the literature reviewed, USDA officials, academics, and industry representatives). The C201 report represents producer sold hogs for the Prior Day slaughter for the two marketing categories of “negotiated” and “swine or pork market formula”. These two marketing categories represent about 48 million hogs annually.

The next best alternative to using the C201 report is the WCB or IAMN based price reports since that is the highest demand area and Ontario exports pigs to that region. The ECB based reports could be used since Ontario exports market hogs primarily to this region, however, these reports tend to have lower hog volumes associated with them.

ii) From reviewing various price series (i.e. WCB, ECB, IAMN, and National) it can be seen that there is a general trend towards higher prices as one moves from Morning to Afternoon to Prior Day purchases report. This daily price change trend is prevalent for both the pricing categories of “negotiated” and “swine or pork market formula”. Therefore, the recommended report is the Prior Day purchases which has the highest prices and volumes.

iii) There are regional differences in prices and hog volumes depending on the

price series selected. For the pricing category of “negotiated” the ranking of the various price series based on highest average weighted price to lowest is WCB, IAMN, National and then ECB. However, for the pricing category of “swine or pork market formula” the ranking based on highest average weighted price to lowest is ECB, National, WCB, and then IAMN.

When regional hog volumes are reviewed the ranking of the regional price series from largest to smallest are as follows. For the pricing category of “negotiated” basis the largest volume is National, followed by WCB, IAMN, and then ECB. When the pricing category of “swine pork market formula” is observed the ranking from largest to smallest is National, WCB, IAMN, and ECB.

iv) U.S. Cutout prices could be used but tend to have very thin volumes

reported and Canadian Cutout prices also suffer from thin volumes and low industry usage.

v) When Ontario hog prices are compared to other provinces, the ranking is

Quebec (average weighted price) – $C148.32/ckg, Manitoba - $C148.08/ckg, followed by Ontario Standard Contract - $C147.25/ckg. It should be noted that this ranking does vary from week to week and year to year. On a weekly basis, the Ontario Standard Contract was higher than the Quebec AWP 43.5% of time and higher than the Manitoba price 42.2% of the time. Caution must be exercised when using the Manitoba



price because it is unknown how it actually compares to what producers receive (i.e. the Manitoba price is a derived formula price, not what processors actually paid).

vi) When Ontario prices during the 2002 – 2006 period are compared to the

weekly Ontario 100% base formula price, prices are generally highest in 2002, start to decline in 2003 and 2004, and then increase in 2005 and 2006. In 2006, Ontario processors began offering new contracts at 101% of the formula price after having new contracts pegged at 100% of the formula price since the fall of 2003.

A possible reason for why Ontario prices decreased relative to the 100% base formula price is that Ontario marketings have exceeded Ontario slaughter capacity, thus Ontario is forced to export hogs to Quebec and the U.S.. Therefore, after accounting for transportation and other expenses related to exporting hogs outside Ontario, the net price received may be lower than prices for hogs sold to Ontario processors.

vii) Both producer and packer margins were estimated for the 2002 to 2006

time period. It is estimated that hog producers averaged about $1.75/hog profit while processors lost $2.10/hog during the time period. Producers had a profit 55% of the time while processors had a profit about 40% of the time. Producers made profits in 2004 and 2005 while processors only made profits in 2002 – 2003 but have lost money since. However, producer margins tend to be more variable than estimated processor spreads and margins.

In conclusion, the USDA 201 report continues to be the best price report due to the large volume of hogs it records and the fact that actual slaughter cost and prices paid for hogs are reported. Ontario prices tend to be lowest when compared to Quebec and Manitoba during the 2002 – 2006 period. When producer and processor margins are estimated, producers have been more profitable (i.e. 55% of the time) than processors (i.e. 40% of the time) over the 2002 – 2006 time period however, producer margins are much more variable.



Appendix One Figures

• Figures Depicting the 201 Price Series (A1-1 to A1-7) • Figures Illustrating “Negotiated” Prices and Hog Volumes by Region (A1-

8 to A1-17) • Figures Illustrating “Swine or Pork Market Formula” Prices and Hog

Volumes by Region (A1-18 to A1-27) • Figure Illustrating Price Spreads, Cutout versus C201 and 213 Prices (A1-

28) • Figures Illustrating Canadian Hog Prices and Spreads (A1-29 to A1-34) • Figures Illustrating Ontario 100% Formula Price Comparison (A1-35 to

A1-36) • Figures Illustrating Canadian Cutout/Canadian Hog Value Spreads (A1-37

to A1-41) • Figures Illustrating Producer/Processor Estimated Margins (A1-42 to A1-

43)



201 - National Prior Day Slaughter Daily Hog Volume, 2002-2006

0

50,000

100,000

150,000

200,000

250,000

300,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Num

ber

of H

ead

Prod. Sold Negotiated Prod. Sold Other Market FormulaProd. Sold Swine or Pork Market Formula Prod. Sold Other Purchase Arrangement

201 - National Prior Day Slaughter Base Prices, 2002-2006

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

Prod. Sold Negotiated Prod. Sold Other Market Formula Prod. Sold Swine or Pork Market FormulaProd. Sold Other Purchase Arrangement CME C201 Lean Index

Figure A1-1

Source: USDA Figure A1-2

Source: USDA



201 - National Prior Day Slaughter Net Prices, 2002-2006

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


201 - National Prior Day Slaughter Premiums/Discounts (Net Price - Base Price),2002-2006

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


Figure A1-3

Source: USDA

Figure A1-4

Source: USDA Note: Premium/Discount = Net Carcass Price – Base Carcass Price



201 - National Prior Day Slaughter Base and Net Prices, 2002-2006

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

Prod Sold Negotiated - Base Prod Sold Negotiated - NetProd Sold Swine or Pork Market Formula - Base Prod Sold Swine or Pork Market Formula - Net

201 - National Prior Day Slaughter Carcass Weight, 2002-2006

185

190

195

200

205

210

215

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Car

cass

Wei

ght (

lbs)


Figure A1-5


Source: USDA



201 - National Prior Day Slaughter % Lean, 2002-2006

52.5

53.0

53.5

54.0

54.5

55.0

55.5

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

% L

ean

(%)


National, Daily Weighted Average Price, Negotiated (Carcass Basis)

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

202 - National Morning 203 - National Afternoon 200 - National Prior Day Purchases

Figure A1-7

Source: USDA

Figure A1-8

Source: USDA



WCB, Daily Weighted Average Price, Negotiated (Carcass Basis)

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

211 - WCB Morning 212 - WCB Afternoon 208 - WCB Prior Day Purchases

Iowa-Minnesota, Daily Weighted Average Price, Negotiated (Carcass Basis)

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

205 - IAMN Morning 206 - IAMN Afternoon 204 - IAMN Prior Day Purchases

Figure A1-9 Source: USDA Figure A1-10

Source: USDA



ECB, Daily Weighted Average Price, Negotiated (Carcass Basis)

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

209 - ECB Morning 210 - ECB Afternoon 207 - ECB Prior Day Purchases

Daily Weighted Average Price, Negotiated (Carcass Basis)

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n

200 - National Prior Day Purchases 204 - IAMN Prior Day Purchases208 - WCB Prior Day Purchases 207 - ECB Prior Day Purchases


Source: USDA



National Daily Hog Volume, Negotiated (Carcass Basis)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


WCB Daily Hog Volume, Negotiated (Carcass Basis)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


Figure A1-13

Source: USDA

Figure A1-14

Source: USDA



Iowa-Minnesota Daily Hog Volume, Negotiated (Carcass Basis)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


ECB Daily Hog Volume, Negotiated (Carcass Basis)

0

5,000

10,000

15,000

20,000

25,000

30,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount



Source: USDA



Daily Volumes, Negotiated (Carcass Basis)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Vol

umes

(Hea

d)


National, Daily Weighted Average Price, Swine/Pork Market Formula (Carcass Basis)

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


Figure A1-17


Source: USDA Note: Prices reported starting in 2004.



WCB, Daily Weighted Average Price, Swine/Pork Market Formula (Carcass Basis)

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


Iowa-Minnesota, Daily Weighted Average Price, Swine/Pork Market Formula (Carcass Basis)

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


Figure A1-19

Source: USDA Note: Prices reported starting in 2004. Figure A1-20




ECB, Daily Weighted Average Price, Swine/Pork Market Formula (Carcass Basis)

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


Daily Weighted Average Price, Swine/Pork Market Formula (Carcass Basis)

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

$/cw

t lea

n


Figure A1-21





National Daily Hog Volume, Swine/Pork Market Formula (Carcass Basis)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


WCB Daily Hog Volume, Swine/Pork Market Formula (Carcass Basis)

0

50,000

100,000

150,000

200,000

250,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


Figure A1-23





ECB Daily Hog Volume, Swine/Pork Market Formula (Carcass Basis)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


Iowa-Minnesota Daily Hog Volume, Swine/Pork Market Formula (Carcass Basis)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Hea

d C

ount


Figure A1-25


Figure A1-26




Daily Volumes, Swine/Pork Market Formula (Carcass Basis)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Vol

umes

(Hea

d)


US Price Spread Comparison, 2002-2006 ($US/cwt lean)(Cutout - Specific Price)

($10)

($5)

$0

$5

$10

$15

2-Ja

n-02

2-M

ar-0

2

2-M

ay-0

2

2-Ju

l-02

2-S

ep-0

2

2-N

ov-0

2

2-Ja

n-03

2-M

ar-0

3

2-M

ay-0

3

2-Ju

l-03

2-S

ep-0

3

2-N

ov-0

3

2-Ja

n-04

2-M

ar-0

4

2-M

ay-0

4

2-Ju

l-04

2-S

ep-0

4

2-N

ov-0

4

2-Ja

n-05

2-M

ar-0

5

2-M

ay-0

5

2-Ju

l-05

2-S

ep-0

5

2-N

ov-0

5

2-Ja

n-06

2-M

ar-0

6

2-M

ay-0

6

2-Ju

l-06

2-S

ep-0

6

Pri

ce S

prea

d ($

US

/cw

t lea

n)

C201 213 (51-52%) 213 (53-54%) 213 (combination)

Figure A1-27

Source: USDA Note: Prices reported starting in 2004. Figure A1-28 Source: USDA Note: Price spread = Cutout – specific price. Cutout prices and 213 (combination) prices are for 53-54% lean as of January 3, 2006. Prior to this date, prices are for 51-52% lean.



Canadian Weekly Hog Prices, 2002-2006

$100

$110

$120

$130

$140

$150

$160

$170

$180

2002 2003 2004 2005 2006 All

Wee

kly

Hog

Pri

ce ($

C/c

kg, i

ndex

100

)

Ontario Pool Ontario Pool Plus Ontario Std Contract Quebec AWP Quebec ContractQuebec Pre-Allocation Quebec Auction Manitoba Canadian Cutout

Canadian Weekly Hog Price Spreads vs Ontario Std Contract Price, 2002-2006

($20)

($15)

($10)

($5)

$0

$5

$10

$15

2002 2003 2004 2005 2006 All

Wee

kly

Hog

Pri

ce S

prea

d ($

C/c

kg, i

ndex

100

)

Ontario Pool Ontario Pool Plus Quebec AWP Quebec Contract Quebec Pre-Allocation Quebec Auction Manitoba Canadian Cutout

Figure A1-29

Source: AAFC, Ontario Pork, FPPQ, MAFRI, Ronald A. Chisholm Ltd. Figure A1-30 Source: AAFC, Ontario Pork, FPPQ, MAFRI, Ronald A. Chisholm Ltd. Note: Price spread = Ontario standard contract price – specific price.



Canadian Price Comparison, 2002-2006

$80

$100

$120

$140

$160

$180

$200

$220

4-Ja

n-02

4-M

ar-0

2

4-M

ay-0

2

4-Ju

l-02

4-S

ep-0

2

4-N

ov-0

2

4-Ja

n-03

4-M

ar-0

3

4-M

ay-0

3

4-Ju

l-03

4-S

ep-0

3

4-N

ov-0

3

4-Ja

n-04

4-M

ar-0

4

4-M

ay-0

4

4-Ju

l-04

4-S

ep-0

4

4-N

ov-0

4

4-Ja

n-05

4-M

ar-0

5

4-M

ay-0

5

4-Ju

l-05

4-S

ep-0

5

4-N

ov-0

5

4-Ja

n-06

4-M

ar-0

6

4-M

ay-0

6

4-Ju

l-06

4-S

ep-0

6

Pri

ce ($

C/c

kg d

ress

ed, i

ndex

100

)

ON std contract ON pool ON pool plus Quebec AWP

Canadian Price Comparison - Spreads, 2002-2006(Ontario std contract - price)

($25)

($20)

($15)

($10)

($5)

$0

$5

$10

$15

$20

$25

$30

4-Ja

n-02

4-M

ar-0

2

4-M

ay-0

2

4-Ju

l-02

4-S

ep-0

2

4-N

ov-0

2

4-Ja

n-03

4-M

ar-0

3

4-M

ay-0

3

4-Ju

l-03

4-S

ep-0

3

4-N

ov-0

3

4-Ja

n-04

4-M

ar-0

4

4-M

ay-0

4

4-Ju

l-04

4-S

ep-0

4

4-N

ov-0

4

4-Ja

n-05

4-M

ar-0

5

4-M

ay-0

5

4-Ju

l-05

4-S

ep-0

5

4-N

ov-0

5

4-Ja

n-06

4-M

ar-0

6

4-M

ay-0

6

4-Ju

l-06

4-S

ep-0

6

Spr

ead

($C

/ckg

dre

ssed

, ind

ex 1

00)

ON pool ON pool plus Quebec AWP

Figure A1-31

Source: AAFC, Ontario Pork, FPPQ Note: Weekly prices Figure A1-32

Source: AAFC, Ontario Pork, FPPQ Note: Price spread = Ontario standard contract price – specific price.



Canadian Price Comparison - Spreads, 2002-2006(Ontario std contract - price)

($25)

($20)

($15)

($10)

($5)

$0

$5

$10

$15

$20

4-Ja

n-02

4-M

ar-0

2

4-M

ay-0

2

4-Ju

l-02

4-S

ep-0

2

4-N

ov-0

2

4-Ja

n-03

4-M

ar-0

3

4-M

ay-0

3

4-Ju

l-03

4-S

ep-0

3

4-N

ov-0

3

4-Ja

n-04

4-M

ar-0

4

4-M

ay-0

4

4-Ju

l-04

4-S

ep-0

4

4-N

ov-0

4

4-Ja

n-05

4-M

ar-0

5

4-M

ay-0

5

4-Ju

l-05

4-S

ep-0

5

4-N

ov-0

5

4-Ja

n-06

4-M

ar-0

6

4-M

ay-0

6

4-Ju

l-06

4-S

ep-0

6

Spr

ead

($C

/ckg

dre

ssed

, ind

ex 1

00)

Manitoba Quebec AWP


$80

$100

$120

$140

$160

$180

$200

$220

4-Ja

n-02

4-M

ar-0

2

4-M

ay-0

2

4-Ju

l-02

4-S

ep-0

2

4-N

ov-0

2

4-Ja

n-03

4-M

ar-0

3

4-M

ay-0

3

4-Ju

l-03

4-S

ep-0

3

4-N

ov-0

3

4-Ja

n-04

4-M

ar-0

4

4-M

ay-0

4

4-Ju

l-04

4-S

ep-0

4

4-N

ov-0

4

4-Ja

n-05

4-M

ar-0

5

4-M

ay-0

5

4-Ju

l-05

4-S

ep-0

5

4-N

ov-0

5

4-Ja

n-06

4-M

ar-0

6

4-M

ay-0

6

4-Ju

l-06

4-S

ep-0

6

Pri

ce ($

C/c

kg d

ress

ed, i

ndex

100

)

ON std contract Manitoba Quebec AWP

Figure A1-33

Source: AAFC, Ontario Pork, FPPQ, MAFRI Note: Weekly prices Figure A1-34 Source: AAFC, Ontario Pork, FPPQ, MAFRI Note: Price spread = Ontario standard contract price – specific price.



Ontario Price Comparison as % of 100% Formula Price, 2002-2006

80%

85%

90%

95%

100%

105%

110%

115%

120%

4-Ja

n-02

4-M

ar-0

2

4-M

ay-0

2

4-Ju

l-02

4-S

ep-0

2

4-N

ov-0

2

4-Ja

n-03

4-M

ar-0

3

4-M

ay-0

3

4-Ju

l-03

4-S

ep-0

3

4-N

ov-0

3

4-Ja

n-04

4-M

ar-0

4

4-M

ay-0

4

4-Ju

l-04

4-S

ep-0

4

4-N

ov-0

4

4-Ja

n-05

4-M

ar-0

5

4-M

ay-0

5

4-Ju

l-05

4-S

ep-0

5

4-N

ov-0

5

4-Ja

n-06

4-M

ar-0

6

4-M

ay-0

6

4-Ju

l-06

4-S

ep-0

6

% o

f 100

% F

orm

ula

Pri

ce (%

)

ON std contract (prev wk form) Pool Pool Plus

Comparison vs Ontario 100% Formula Price, 2002-2006

103%

102%101%

100% 100%

101%101%

98%

96%

99% 99% 99%

103.2%

101.6%

99.3% 99.5% 99.4%

100.7%

92%

94%

96%

98%

100%

102%

104%

2002 2003 2004 2005 2006 All

% o

f Ont

ario

100

% F

orm

ula

Pri

ce

Ontario Std Contract Ontario Pool Ontario Pool Plus

Figure A1-35

Source: Ontario Pork Note: Calculation = (specific price divided by Ontario 100% formula price) x 100. ON std contract (prev wk form) = (Ontario standard contract price for current week divided by Ontario 100% formula price for previous week) x 100.

Figure A1-36

Source: Ontario Pork Note: Calculation = (specific price divided by Ontario 100% formula price) x 100. ON std contract (prev wk form) = (Ontario standard contract price for current week divided by Ontario 100% formula price for previous week) x 100.




$80

$100

$120

$140

$160

$180

$200

$220

$240

4-Ja

n-02

4-M

ar-0

2

4-M

ay-0

2

4-Ju

l-02

4-S

ep-0

2

4-N

ov-0

2

4-Ja

n-03

4-M

ar-0

3

4-M

ay-0

3

4-Ju

l-03

4-S

ep-0

3

4-N

ov-0

3

4-Ja

n-04

4-M

ar-0

4

4-M

ay-0

4

4-Ju

l-04

4-S

ep-0

4

4-N

ov-0

4

4-Ja

n-05

4-M

ar-0

5

4-M

ay-0

5

4-Ju

l-05

4-S

ep-0

5

4-N

ov-0

5

4-Ja

n-06

4-M

ar-0

6

4-M

ay-0

6

4-Ju

l-06

4-S

ep-0

6

Pri

ce ($

C/c

kg d

ress

ed, i

nde

x 10

0)

ON std contract Quebec AWP Cdn Cutout

Canadian Cutout/Hog Value Price Spreads ($C/head), 2002-2006

($20)

($10)

$0

$10

$20

$30

$40

$50

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Ontario Std Contract Quebec AWP

Figure A1-37

Source: AAFC, Ontario Pork, FPPQ, Ronald A. Chisholm Ltd. Note: Cutout value is C$/head and is estimated using wholesale pork prices, average historical Cutout breakdown, and Ontario average annual hog weights. Figure A1-38 Source: AAFC, Ontario Pork, FPPQ, Ronald A. Chisholm Ltd. Note: Price spread = Cutout value – hog value. Cutout value is C$/head and is estimated using wholesale pork prices, average historical Cutout breakdown, and Ontario average annual hog weights. Ontario hog value is estimated using Ontario standard contract prices and average annual index and hog weights. Quebec AWP hog value is estimated using Quebec AWP and average annual index and Ontario average annual hog weights.



Canadian Cutout/Hog Value Price Spreads ($C/head), 2002-2006

20

17

10

8

11

13

18 18

7

3

13

11

$0

$5

$10

$15

$20

$25

2002 2003 2004 2005 2006 All

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ead,

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Val

ue ($

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ead)


Spread, Canadian Cutout vs. Ontario and Quebec Hog Prices ($C/kg), 2002-2006

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

4-Ja

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4-M

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2

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2

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Spr

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tout

-Hog

Pri

ce ($

C/k

g)


Figure A1-39

Source: AAFC, Ontario Pork, FPPQ, Ronald A. Chisholm Ltd. Note: Price spread = Cutout value – hog value. Cutout value is C$/head and is estimated using wholesale pork prices, average historical Cutout breakdown, and Ontario average annual hog weights. Ontario hog value is estimated using Ontario standard contract prices and average annual index and hog weights. Quebec AWP hog value is estimated using Quebec AWP and average annual index and Ontario average annual hog weights. Figure A1-40 Source: AAFC, Ontario Pork, FPPQ, Ronald A. Chisholm Ltd. Note: Price spread = Cutout ($/kg) – specific hog price ($/kg)



Spread, Canadian Cutout vs Ontario and Quebec Hog Prices, 2002-2006

0.93

0.89

0.93

0.81

0.77

0.87

0.92

0.90 0.90

0.76

0.80

0.86

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

2002 2003 2004 2005 2006 All

Spr

ead,

Cut

out-

Hog

Pri

ce ($

C/k

g)


Producer/Processor Estimated Margins, 2002-2006

($60)

($50)

($40)

($30)

($20)

($10)

$0

$10

$20

$30

$40

$50

$60

$70

4-Ja

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4

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4-M

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4-M

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4-S

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6

$C/h

ead

Producer Processor

Figure A1-41

Source: AAFC, Ontario Pork, FPPQ, Ronald A. Chisholm Ltd. Note: Price spread = Cutout ($/kg) – specific hog price ($/kg)

Figure A1-42

Source: AAFC, Ontario Pork, Ronald A. Chisholm Ltd., OMAFRA Note: Producer margin = (Ontario standard contract price x index x dress weight) – (Ontario estimated hog cost of production). Processor margin = (Cutout + byproduct) – (hog value + FOB + labour).



Estimated Margins, Ontario Producer vs Ontario Processor, 2002-2006

($11)

($15)

$20

$12

$1$2

$3

$1

($3)

($7)($5)

($2)

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

$25

2002 2003 2004 2005 2006 All

Est

imat

ed M

argi

n ($

C/h

ead)

Ontario Producer Ontario Processor (Hog/Labour COP)

Figure A1-43

Source: AAFC, Ontario Pork, Ronald A. Chisholm Ltd., OMAFRA Note: Producer margin = (Ontario standard contract price x index x dress weight) – (Ontario estimated hog cost of production). Processor margin = (Cutout + byproduct) – (hog value + FOB + labour).



Appendix Two Tables

• Tables Displaying U.S. Hog Volumes by Regional Report (A2-1 to A2-4) • Table Displaying U.S. Daily Price Comparison (A2-5 to A2-6) • Tables Displaying U.S. Daily Price Spread Comparison by Region and

Report (A2-7 toA2-10)



Table A2-1. U.S. National Region Daily Hog Volume Comparison, 2002-2006 (head)

Region Average St Dev Low High Count Total Hog

Volume CV 202 - National Morning Negotiated (carcass basis) 8,666 2,703 2,361 19,688 1,198 10,382,231 31.2% Negotiated (live basis) 1,837 703 337 7,297 685 1,258,562 38.3% Swine/Pork Market Formula (carcass basis) 45,239 12,243 4,043 78,918 687 31,079,110 27.1% 203 - National Afternoon Negotiated (carcass basis) 25,090 6,423 8,964 48,471 1,201 30,133,111 25.6% Negotiated (live basis) 4,787 1,460 1,181 14,458 690 3,303,338 30.5% Swine/Pork Market Formula (carcass basis) 77,641 13,243 10,427 123,689 690 53,571,949 17.1% 200 - National Prior Day Purchases Negotiated (carcass basis) 31,893 7,118 14,012 61,221 1,202 38,335,641 22.3% Negotiated (live basis) 6,046 2,124 1,368 36,930 691 4,178,046 35.1% Swine/Pork Market Formula (carcass basis) 145,845 27,195 91,739 311,441 691 100,778,569 18.6% 200 - National Prior Day Purchases Prod. Sold Negotiated Current Volume (All swine, live/carcass basis) 46,807 8,285 21,253 77,855 1,202 56,262,199 17.7% Head Count (Barrows/Gilts, carcass basis) 31,619 7,318 13,243 61,221 1,202 38,005,529 23.1% Prod. Sold Swine or Pork Market Formula Current Volume (All swine, live/carcass basis) 150,375 25,897 87,267 322,770 1,202 180,751,003 17.2% Head Count (Barrows/Gilts, carcass basis) 137,517 25,525 83,737 308,120 1,202 165,295,238 18.6% Prod. Sold Other Market Formula Current Volume (All swine, live/carcass basis) 32,281 22,801 2,717 198,223 1,202 38,801,609 70.6% Head Count (Barrows/Gilts, carcass basis) 31,995 22,734 2,717 197,871 1,202 38,457,991 71.1% Prod. Sold Other Purchase Arrangement Current Volume (All swine, live/carcass basis) 60,658 44,044 8,039 226,595 1,202 72,911,192 72.6% Head Count (Barrows/Gilts, carcass basis) 56,334 44,035 7,132 224,808 1,202 67,713,030 78.2% Prod. Sold (All Purchase Types) Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Packer Owned Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Pack. Sold (All Purchase Types) Current Volume (All swine, live/carcass basis) 10,633 6,436 179 44,279 1,202 12,781,337 60.5% Head Count (Barrows/Gilts, carcass basis) 4,295 5,719 30 35,960 1,185 5,089,216 133.2% 213 - National Cost 169,488 27,009 83,311 341,826 1,200 203,385,933 15.9% 201 - National Prior Day Slaughter 360,501 51,531 169,891 684,641 1,198 431,880,723 14.3% C201 189,670 29,964 96,495 374,094 1,201 227,794,178 15.8% Prod. Sold Negotiated 43,617 11,534 22,083 102,355 1,201 52,384,456 26.4% Prod. Sold Swine or Pork Market Formula 146,053 21,040 68,237 279,328 1,201 175,409,722 14.4% Prod. Sold Other Market Formula 31,328 10,058 5,485 78,331 1,201 37,625,262 32.1% Prod. Sold Other Purchase Arrangement 59,546 16,975 14,362 137,198 1,201 71,514,843 28.5% Prod. Sold (All Purchase Types) 280,543 42,635 142,259 536,810 1,201 336,931,667 15.2% Packer Owned 69,849 13,051 11,050 161,933 1,201 83,889,215 18.7% Pack. Sold (All Purchase Types) 10,101 6,140 1,715 39,791 1,199 12,111,383 60.8% Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006; CV = coefficient of variation; St Dev = standard deviation; NA = not available.



Table A2-2. U.S. Western Corn Belt Region Daily Hog Volume Comparison, 2002-2006 (head)

Region Average St Dev Low High Count Total Hog Volume CV

211 - WCB Morning

Negotiated (carcass basis) 4,810 2,100 801 14,027 1,199 5,767,010 43.7%

Negotiated (live basis) 653 451 25 4,958 608 397,120 69.1%

Swine/Pork Market Formula (carcass basis) 33,634 7,613 3,259 61,630 623 20,954,170 22.6% 212 - WCB Afternoon

Negotiated (carcass basis) 15,436 4,483 4,206 33,957 1,201 18,538,239 29.0%

Negotiated (live basis) 2,072 1,003 219 10,664 625 1,295,215 48.4%

Swine/Pork Market Formula (carcass basis) 50,774 9,881 17,833 91,311 625 31,733,850 19.5% 208 - WCB Prior Day Purchases

Negotiated (carcass basis) 21,062 5,382 7,596 41,966 1,200 25,274,990 25.6%

Negotiated (live basis) 2,553 1,269 337 11,709 624 1,593,069 49.7%

Swine/Pork Market Formula (carcass basis) 99,404 23,389 50,563 222,917 624 62,027,833 23.5% 208 - WCB Prior Day Purchases Prod. Sold Negotiated

Current Volume (All swine, live/carcass basis) 26,978 6,172 7,896 49,434 1,203 32,454,427 22.9%

Head Count (Barrows/Gilts, carcass basis) 20,808 5,555 5,596 41,966 1,203 25,032,501 26.7% Prod. Sold Swine or Pork Market Formula


Head Count (Barrows/Gilts, carcass basis) 91,545 20,646 44,379 222,917 1,203 110,128,788 22.6% Prod. Sold Other Market Formula


Head Count (Barrows/Gilts, carcass basis) 23,129 19,748 1,092 183,331 1,203 27,823,622 85.4% Prod. Sold Other Purchase Arrangement


Head Count (Barrows/Gilts, carcass basis) 38,874 41,882 2,280 197,345 1,203 46,765,690 107.7% Prod. Sold (All Purchase Types)

Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Packer Owned

Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Pack. Sold (All Purchase Types)

Current Volume (All swine, live/carcass basis) 5,266 6,851 21 29,466 410 2,158,862 130.1%

Head Count (Barrows/Gilts, carcass basis) 5,164 6,763 19 27,433 373 1,926,064 131.0% Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006; CV = coefficient of variation; St Dev = standard deviation; NA = not available.



Table A2-3. U.S. Iowa-Minnesota Region Daily Hog Volume Comparison, 2002-2006 (head)


Volume CV 205 - IAMN Morning Negotiated (carcass basis) 3,779 1,806 402 12,561 1,196 4,519,158 47.8% Negotiated (live basis) 468 399 25 4,807 582 272,284 85.2% Swine/Pork Market Formula (carcass basis) 25,838 6,574 164 49,083 620 16,019,869 25.4% 206 - IAMN Afternoon Negotiated (carcass basis) 11,502 3,690 2,982 27,033 1,200 13,802,976 32.1% Negotiated (live basis) 1,374 845 70 9,186 624 857,099 61.5% Swine/Pork Market Formula (carcass basis) 39,223 8,391 11,328 73,435 624 24,475,438 21.4% 204 - IAMN Prior Day Purchases Negotiated (carcass basis) 17,568 4,796 6,058 36,752 1,201 21,099,480 27.3% Negotiated (live basis) 2,260 1,192 144 10,936 625 1,412,309 52.7% Swine/Pork Market Formula (carcass basis) 83,192 19,909 40,569 182,374 625 51,994,867 23.9% 204 - IAMN Prior Day Purchases Prod. Sold Negotiated Current Volume (All swine, live/carcass basis) 23,260 5,528 6,876 46,500 1,200 27,911,967 23.8% Head Count (Barrows/Gilts, carcass basis) 17,415 4,883 4,778 36,752 1,201 20,915,490 28.0% Prod. Sold Swine or Pork Market Formula Current Volume (All swine, live/carcass basis) 80,826 17,357 17,194 185,608 1,201 97,072,235 21.5% Head Count (Barrows/Gilts, carcass basis) 77,234 17,444 34,385 182,374 1,201 92,757,610 22.6% Prod. Sold Other Market Formula Current Volume (All swine, live/carcass basis) 20,368 16,524 912 181,261 1,201 24,462,500 81.1% Head Count (Barrows/Gilts, carcass basis) 20,336 16,530 912 181,261 1,201 24,423,622 81.3% Prod. Sold Other Purchase Arrangement Current Volume (All swine, live/carcass basis) 35,274 34,635 2,280 160,957 1,201 42,364,559 98.2% Head Count (Barrows/Gilts, carcass basis) 34,547 34,646 2,280 160,303 1,201 41,491,259 100.3% Prod. Sold (All Purchase Types) Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Packer Owned Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Pack. Sold (All Purchase Types) Current Volume (All swine, live/carcass basis) 4,781 5,903 21 27,646 395 1,888,315 123.5% Head Count (Barrows/Gilts, carcass basis) 4,682 5,752 21 26,746 357 1,671,570 122.9% Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006; CV = coefficient of variation; St Dev = standard deviation; NA = not available.



Table A2-4. U.S. Eastern Corn Belt Region Daily Hog Volume Comparison, 2002-2006 (head)


Volume CV 209 - ECB Morning Negotiated (carcass basis) 3,777 1,208 392 10,359 1,197 4,520,657 32.0% Negotiated (live basis) 920 438 31 2,948 620 570,511 47.6% Swine/Pork Market Formula (carcass basis) 12,368 2,460 784 19,525 623 7,704,953 19.9% 210 - ECB Afternoon Negotiated (carcass basis) 9,375 3,054 1,543 21,236 1,201 11,259,845 32.6% Negotiated (live basis) 2,286 821 334 6,842 625 1,428,546 35.9% Swine/Pork Market Formula (carcass basis) 22,457 2,946 11,802 33,616 625 14,035,646 13.1% 207 - ECB Prior Day Purchases Negotiated (carcass basis) 10,799 3,334 2,899 26,264 1,200 12,958,891 30.9% Negotiated (live basis) 3,417 1,663 789 35,791 624 2,132,146 48.7% Swine/Pork Market Formula (carcass basis) 42,997 5,630 24,235 82,245 624 26,830,433 13.1% 207 - ECB Prior Day Purchases Prod. Sold Negotiated Current Volume (All swine, live/carcass basis) 19,295 3,497 7,527 45,854 1,201 23,173,597 18.1% Head Count (Barrows/Gilts, carcass basis) 10,770 3,344 2,899 26,264 1,202 12,946,071 31.0% Prod. Sold Swine or Pork Market Formula Current Volume (All swine, live/carcass basis) 49,252 8,068 3,910 106,934 1,202 59,200,939 16.4% Head Count (Barrows/Gilts, carcass basis) 42,264 7,371 19,614 84,477 1,202 50,800,922 17.4% Prod. Sold Other Market Formula Current Volume (All swine, live/carcass basis) 9,110 6,351 441 58,429 1,202 10,950,090 69.7% Head Count (Barrows/Gilts, carcass basis) 8,831 6,308 441 58,303 1,202 10,615,312 71.4% Prod. Sold Other Purchase Arrangement Current Volume (All swine, live/carcass basis) 19,917 6,838 1,947 47,015 1,202 23,940,393 34.3% Head Count (Barrows/Gilts, carcass basis) 16,900 6,061 1,947 44,391 1,202 20,313,885 35.9% Prod. Sold (All Purchase Types) Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Packer Owned Current Volume (All swine, live/carcass basis) NA NA NA NA NA NA NA Head Count (Barrows/Gilts, carcass basis) NA NA NA NA NA NA NA Pack. Sold (All Purchase Types) Current Volume (All swine, live/carcass basis) 1,602 1,300 82 8,006 1,199 1,920,873 81.1% Head Count (Barrows/Gilts, carcass basis) 1,577 1,255 51 6,216 425 670,127 79.6%

Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006; CV = coefficient of variation U.S. Price Reports; St Dev = standard deviation; NA = not available.



Table A2-5. U.S. Daily Price Comparison, 2002-2006 ($US/cwt)

Region Average St Dev Low High Count

Daily Hog

Volume Total Hog

Volume CV Correlation

(vs C201) National 202 - National Morning Negotiated (carcass basis) 58.57 11.62 25.27 81.79 1,198 8,666 10,382,231 19.8% 0.9958 Swine/Pork Market Formula (carcass basis) 64.69 7.01 48.67 80.24 687 45,239 31,079,110 10.8% 0.9814

203 - National Afternoon Negotiated (carcass basis) 58.89 11.63 25.97 81.75 1,201 25,090 30,133,111 19.8% 0.9939 Swine/Pork Market Formula (carcass basis) 64.91 7.30 47.11 80.89 690 77,641 53,571,949 11.2% 0.9971

200 - National Prior Day Purchases Negotiated (carcass basis) 59.06 11.73 25.98 81.90 1,202 31,893 38,335,641 19.9% 0.9935 Swine/Pork Market Formula (carcass basis) 66.25 7.24 48.92 81.18 691 145,845 100,778,569 10.9% 0.9968

213 - National Cost Base Cost 49-50% 58.56 11.34 28.49 81.15 1,200 169,488 203,385,933 19.4% 0.9997 Base Cost 51-52% 60.47 11.37 30.24 83.18 1,200 18.8% 0.9997 Base Cost 53-54% 62.59 11.39 32.25 85.37 1,200 18.2% 0.9998 201 - National Prior Day Slaughter C201 61.32 11.15 31.60 83.90 1,201 189,670 227,794,178 18.2% 1.0000 Prod. Sold Negotiated Carcass Base Price 59.20 11.59 26.92 81.56 1,201 43,617 52,384,456 19.6% 0.9986 Average Net Price 60.63 11.55 27.70 83.43 1,201 19.1% 0.9989 Prod. Sold Swine or Pork Market Formula

Carcass Base Price 58.78 11.24 29.00 81.20 1,201 146,053 175,409,722 19.1% 0.9996 Average Net Price 61.53 11.02 32.37 84.04 1,201 17.9% 0.9999 Prod. Sold Other Market Formula Carcass Base Price 56.54 7.18 36.27 71.24 1,201 31,328 37,625,262 12.7% 0.8519 Average Net Price 59.53 7.33 39.10 74.20 1,201 12.3% 0.8454 Prod. Sold Other Purchase Arrangement

Carcass Base Price 60.09 7.01 46.89 75.29 1,201 59,546 71,514,843 11.7% 0.9833 Average Net Price 61.90 6.74 50.92 77.55 1,201 10.9% 0.9751 Prod. Sold (All Purchase Types) Carcass Base Price 58.84 9.65 34.87 77.22 1,201 280,543 336,931,667 16.4% 0.9983 Average Net Price 61.23 9.51 37.88 80.01 1,201 15.5% 0.9987 Packer Owned Carcass Base Price NA NA NA NA NA 69,849 83,889,215 NA NA Average Net Price NA NA NA NA NA NA NA Pack. Sold (All Purchase Types) Carcass Base Price 60.61 12.00 27.57 85.61 1,194 10,101 12,111,383 19.8% 0.9842 Average Net Price 63.91 11.11 31.76 86.39 1,197 17.4% 0.9890 500 - Cutout Cutout 64.58 9.30 42.74 87.88 1,197 14.4% 0.9754 Belly 84.76 13.37 56.20 124.80 1,197 15.8% 0.6978 Butt 61.73 12.74 35.77 86.86 1,197 20.6% 0.8749 Ham 51.80 12.58 27.39 83.89 1,197 24.3% 0.8087 Loin 80.36 10.12 57.28 117.53 1,197 12.6% 0.8236 Picnic 41.31 10.76 21.47 65.44 1,197 26.1% 0.8798 Sparerib 121.05 16.21 76.51 177.74 1,197 13.4% 0.7270



Table A2-6. U.S. Daily Price Comparison, 2002-2006 ($US/cwt)

Region Average St Dev Low High Count

Daily Hog

Volume Total Hog

Volume CV Correlation

(vs C201) Western Corn Belt 211 - WCB Morning Negotiated (carcass basis) 58.86 11.79 25.47 83.06 1,199 4,810 5,767,010 20.0% 0.9919 Swine/Pork Market Formula (carcass basis) 65.02 7.13 48.32 80.67 623 33,634 20,954,170 11.0% 0.9881

212 - WCB Afternoon Negotiated (carcass basis) 59.10 11.71 25.72 83.04 1,201 15,436 18,538,239 19.8% 0.9906 Swine/Pork Market Formula (carcass basis) 65.40 7.14 48.71 80.84 625 50,774 31,733,850 10.9% 0.9954

208 - WCB Prior Day Purchases Negotiated (carcass basis) 59.26 11.79 25.93 83.35 1,200 21,062 25,274,990 19.9% 0.9905 Swine/Pork Market Formula (carcass basis) 66.68 6.95 50.18 81.01 624 99,404 62,027,833 10.4% 0.9962

Iowa-Minnesota 205 - IAMN Morning Negotiated (carcass basis) 58.89 11.81 25.70 83.27 1,196 3,779 4,519,158 20.1% 0.9912 Swine/Pork Market Formula (carcass basis) 64.84 7.07 48.15 80.44 620 25,838 16,019,869 10.9% 0.9876

206 - IAMN Afternoon Negotiated (carcass basis) 59.22 11.81 25.66 83.21 1,200 11,502 13,802,976 19.9% 0.9902 Swine/Pork Market Formula (carcass basis) 65.28 7.12 48.57 80.61 624 39,223 24,475,438 10.9% 0.9953

204 - IAMN Prior Day Purchases Negotiated (carcass basis) 59.26 11.83 25.93 83.37 1,201 17,568 21,099,480 20.0% 0.9906 Swine/Pork Market Formula (carcass basis) 66.61 6.93 50.02 80.92 625 83,192 51,994,867 10.4% 0.9958

Eastern Corn Belt 209 - ECB Morning Negotiated (carcass basis) 58.19 11.58 24.57 81.14 1,197 3,777 4,520,657 19.9% 0.9948 Swine/Pork Market Formula (carcass basis) 65.31 6.85 48.09 78.99 623 12,368 7,704,953 10.5% 0.9915

210 - ECB Afternoon Negotiated (carcass basis) 58.51 11.52 25.75 81.85 1,201 9,375 11,259,845 19.7% 0.9952 Swine/Pork Market Formula (carcass basis) 66.15 6.91 49.74 80.90 625 22,457 14,035,646 10.4% 0.9955

207 - ECB Prior Day Purchases Negotiated (carcass basis) 58.55 11.54 25.51 81.70 1,200 10,799 12,958,891 19.7% 0.9946 Swine/Pork Market Formula (carcass basis) 67.64 6.94 51.30 81.35 624 42,997 26,830,433 10.3% 0.9948

Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006. NA = not available; St Dev = standard deviation; CV = coefficient of variation.



Table A2-7. U.S. Daily Price Spread Comparison Versus C201, 2002-2006 ($US/cwt)

Region Average St Dev Low High Count % of Time

C201 Higher National

202 - National Morning

Negotiated (carcass basis) 2.73 1.14 -0.80 8.02 1,198 98.4%

Swine/Pork Market Formula (carcass basis) 4.00 1.43 -0.96 6.70 687 98.0% 203 - National Afternoon


Swine/Pork Market Formula (carcass basis) 3.81 0.57 1.83 5.75 690 100.0% 200 - National Prior Day Purchases


Swine/Pork Market Formula (carcass basis) 2.47 0.59 0.43 4.33 690 100.0% 213 - National Cost

Base Cost 49-50% 2.75 0.35 1.73 3.93 1,200 100.0%

Base Cost 51-52% 0.85 0.35 -0.14 2.09 1,200 99.7%

Base Cost 53-54% -1.27 0.34 -2.20 -0.04 1,200 0.0% 201 - National Prior Day Slaughter Prod. Sold Negotiated

Carcass Base Price 2.12 0.74 -0.40 5.07 1,201 99.8%

Average Net Price 0.70 0.67 -1.45 4.10 1,201 86.5%

Prod. Sold Swine or Pork Market Formula

Carcass Base Price 2.54 0.35 1.12 3.94 1,201 100.0%

Average Net Price -0.21 0.20 -1.17 0.46 1,201 13.2%

Prod. Sold Other Market Formula



Prod. Sold Other Purchase Arrangement



Prod. Sold (All Purchase Types)



Packer Owned

Carcass Base Price NA NA NA NA NA NA

Average Net Price NA NA NA NA NA NA

Pack. Sold (All Purchase Types)



500 - Cutout

Cutout -3.24 2.92 -11.98 5.88 1,197 13.1% Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006, NA = not available; St Dev = standard deviation; Price spread = C201 price – specific price.



Table A2-8. U.S. Daily Price Spread Comparison vs C201, 2002-2006 ($US/cwt)


C201 Higher Western Corn Belt 211 - WCB Morning Negotiated (carcass basis) 2.46 1.59 -3.12 8.09 1,199 93.6% Swine/Pork Market Formula (carcass basis) 4.50 1.10 0.04 7.04 623 100.0% 212 - WCB Afternoon Negotiated (carcass basis) 2.22 1.66 -3.22 8.44 1,201 91.4% Swine/Pork Market Formula (carcass basis) 4.10 0.69 1.91 6.28 625 100.0% 208 - WCB Prior Day Purchases Negotiated (carcass basis) 2.05 1.71 -3.40 7.91 1,200 89.1% Swine/Pork Market Formula (carcass basis) 2.80 0.62 0.64 4.73 624 100.0% Iowa-Minnesota 205 - IAMN Morning Negotiated (carcass basis) 2.39 1.67 -3.48 7.68 1,196 92.2% Swine/Pork Market Formula (carcass basis) 4.64 1.11 0.18 7.12 620 100.0% 206 - IAMN Afternoon Negotiated (carcass basis) 2.10 1.74 -3.48 8.17 1,200 89.5% Swine/Pork Market Formula (carcass basis) 4.22 0.69 1.78 6.43 624 100.0% 204 - IAMN Prior Day Purchases Negotiated (carcass basis) 2.07 1.71 -3.39 7.58 1,201 88.9% Swine/Pork Market Formula (carcass basis) 2.89 0.67 0.22 4.87 625 100.0% Eastern Corn Belt 209 - ECB Morning Negotiated (carcass basis) 3.10 1.24 -1.74 7.98 1,197 99.9% Swine/Pork Market Formula (carcass basis) 4.19 0.94 0.30 7.06 623 100.0% 210 - ECB Afternoon Negotiated (carcass basis) 2.81 1.17 -0.61 7.64 1,201 99.7% Swine/Pork Market Formula (carcass basis) 3.35 0.69 1.16 5.24 625 100.0% 207 - ECB Prior Day Purchases Negotiated (carcass basis) 2.77 1.24 -0.84 8.36 1,200 98.9% Swine/Pork Market Formula (carcass basis) 1.86 0.74 -1.64 3.96 624 99.4%

Source: USDA Reports Note: Time period is January 2, 2002 - September 15, 2006; St Dev = standard deviation; Price spread = C201 price – specific price.



Table A2-9. U.S. Daily Price Spread Comparison, 2002-2006 ($US/cwt)


Higher Negotiated (carcass basis) Nat-IAMN -0.20 0.50 -2.53 1.43 1,201 34.7% Nat-ECB 0.50 1.03 -3.49 5.32 1,200 66.6% Nat-WCB -0.22 0.49 -2.49 1.61 1,200 32.7% IAMN-ECB 0.70 1.50 -4.38 7.41 1,200 66.1% IAMN-WCB -0.02 0.16 -1.06 0.63 1,200 45.9% ECB-WCB -0.72 1.50 -7.25 4.17 1,199 33.2% Swine/Pork Market Formula (carcass basis) Nat-IAMN 0.43 0.24 -0.51 1.27 625 96.8% Nat-ECB -0.60 0.40 -2.15 0.79 624 5.9% Nat-WCB 0.35 0.20 -0.26 0.95 624 97.0% IAMN-ECB -1.03 0.60 -2.87 1.18 624 4.2% IAMN-WCB -0.08 0.13 -0.80 0.45 624 21.5% ECB-WCB 0.95 0.59 -0.93 2.73 623 95.0% 500 Cutout/213 National Cutout-213 (51-52%) 4.09 3.08 -5.57 13.35 1,196 90.6% Cutout-213 (53-54%) 1.97 3.09 -7.78 11.35 1,196 74.7% Cutout-213 (combination) 3.78 3.20 -5.57 13.35 1,196 88.5% Source: USDA Reports Note: period is January 2, 2002 - September 15, 2006 213 (combination) is 53-54% price as of January 3, 2006. Prior to this date, prices are for 51-52% lean; Cutout Value is for 53-54% lean as of January 3, 2006. Prior to this date, prices are for 51-52% lean. St Dev = standard deviation; Price spread = first price listed – second price listed.



Table A2-10. U.S. Daily Price Spread Comparison Versus Cutout, 2002-2006 ($US/cwt)

Average St Dev Low High Count

% of Time Cutout Higher

Constructed 201 2002 5.31 2.75 -0.11 11.98 255 99.2% 2003 4.43 2.27 -1.97 9.19 254 96.5% 2004 1.79 2.70 -5.88 7.45 255 73.3% 2005 1.53 2.75 -5.13 8.77 255 69.8% 2006 3.11 1.64 -0.23 6.87 178 99.4% All 3.24 2.92 -5.88 11.98 1,197 86.9% 213 (51-52%) 2002 6.52 2.81 1.06 13.35 255 100.0% 2003 5.44 2.27 -0.93 10.44 254 99.2% 2004 2.50 2.87 -5.57 8.80 255 81.2% 2005 2.15 2.73 -4.22 9.13 254 75.2% 2006 3.75 1.63 0.77 7.55 178 100.0% All 4.09 3.08 -5.57 13.35 1,196 90.6% 213 (53-54%) 2002 4.41 2.86 -1.04 11.35 255 94.5% 2003 3.30 2.28 -3.13 8.24 254 89.0% 2004 0.35 2.86 -7.78 6.51 255 53.3% 2005 0.02 2.71 -6.40 6.95 254 53.5% 2006 1.68 1.63 -1.36 5.33 178 86.5% All 1.97 3.09 -7.78 11.35 1,196 74.7% 213 (Combination) 2002 6.52 2.81 1.06 13.35 255 100.0% 2003 5.44 2.27 -0.93 10.44 254 99.2% 2004 2.50 2.87 -5.57 8.80 255 81.2% 2005 2.15 2.73 -4.22 9.13 254 75.2% 2006 1.68 1.63 -1.36 5.33 178 86.5% All 3.78 3.20 -5.57 13.35 1,196 88.5% Source: USDA Reports Note: period is January 2, 2002 - September 15, 2006. 213 (combination) is 53-54% price as of January 3, 2006. Prior to this date, prices are for 51-52% lean. Cutout Value is for 53-54% lean as of January 3, 2006. Prior to this date, prices are for 51-52% lean. St Dev = Standard deviation; Price spread = Cutout price – specific price.



References Agriculture and Agri-Food Canada Red Meat Market Information. 2006. Various internet reports. http://www.agr.gc.ca/misb/aisd/redmeat/mimain.htm Chisholm, Ronald A. Ltd., weekly wholesale pork price data, 2006. Duffy, Randy, Ken McEwan and Patrick O’Neil. 2000. Hog Price Comparison Update, study done for Ontario Pork Producers’ Marketing Board. Federation des Producteurs de Porcs du Qu�bec (FPPQ), various weekly sales reports http://www.fppq.upa.qc.ca/macros/m_stats.mac/menu Grimes, Glenn and Ron Plain. U.S. Hog Marketing Contract Study. Department of Agricultural Economics Working Paper No. AEWP 2006-01. January 2006. Grimes, Glenn, Ron Plain and Steve R. Meyer. March 2006. Checkoff Analysis of USDA Price Data, study done for National Pork Board. Grimes, Glenn and Ron Plain. Analysis of USDA Mandatory Hog Price Data. Department of Agricultural Economics Working Paper No. AEWP 2006-04. May 2006. Manitoba Agriculture, Food and Rural Initiatives, Livestock Market Report Archives http://www.gov.mb.ca/agriculture/news/markets/livestock/archive.html McEwan, Ken, Randy Duffy and Stuart DeVries. 1998. Developing An Alternative Hog Pricing Scheme, study done for Ontario Pork Producers’ Marketing Board. Jones, S.D.M., Tong, A.K.W., Robertson, W.M. and Skoczylas, P. 1992. National Pork Carcass Cutout Project. A comparison of the 1978 and 1992 cut-outs. Canadian Pork Council, Ottawa. Ontario Pork, various weekly sales reports http://www.ontariopork.on.ca/daily recap/wklyrecap.html Plain, Ron and Glenn Grimes. 2004. Marketing Slaughter Hogs Under Contract, Pork Information Gateway Factsheet PIG 11-03-01. Purcell, Wayne, Editor. 1997. Price Discovery in Concentrated Livestock Markets: Issues, Answers, Future Directions. Research Institute on Livestock Pricing, Department of Agricultural and Applied Economics, University of Virginia Tech. Schroeder, Ted C., and James Mintert. 1999. Livestock Price Discovery: Trends and Issues. Kansas State University Risk and Profit Conference, August 19-20, 1999.



Schroeder, Ted C., and James Mintert. 1999. Market Hog Price Discovery: Barriers and Opportunities. NPPC National Pork Summit: The New Reality Conference, December 10, 1999. Schroeder, Ted C., James Mintert and Eric P. Berg. 2004. Valuing Market Hogs: Information and Pricing Issues. Kansas State University. US Government Accountability Office, Livestock Market Reporting USDA Livestock and Grain Market News Branch. 2006. Various internet reports. http://www.ams.usda.gov/lsmnpubs/

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