LIVESTOCK MARKETS

HOW DO MOST LIVESTOCK MOVE TO MARKET?

DIRECT SALES

DIRECT SALES INVOLVE A DIRECT CONTACT BETWEEN PRODUCER AND PACKER BUYER.

PACKER BUYER WORKS FOR A PACKING COMPANY. THUS THE ANIMALS HE/SHE BUYS ARE DESTINE FOR SLAUGHTER, HOW DO MOST LIVESTOCK MOVE TO MARKET?

SMALL PRODUCERS ARE NOT USUALLY INVOLVED WITH PACKER BUYERS NOT AN EFFICIENT USE OF TIME

COST AND BENEFITS OF DIRECT SALES CONVENIENCE -- SELLERS SAVE TIME COST -- LOADING, SHIPPING, SHRINKAGE ARE REDUCED MARKET POWER -- SELLER CAN REJECT SALE IF HE WISHES (ANIMALS ARE STILL ON THE FARM)

THE PACKER BUYER IS UNDER PRESSURE TO SUPPLY THE PLANTS ENOUGH STOCK TO KEEP THEM OPEN HOWEVER THEY WANT TO PURCHASE THE STOCK AS CHEAPLY AS POSSIBLE.

GENERAL BID PARAMETERS AND QUOTAS ARE GIVEN TO THE BUYERS EACH DAY FROM THE HOME OFFICE

PACKER BUYERS ARRANGE LONG TERM CONTRACTUAL AGREEMENTS WITH PRODUCERS BASED ON PRICING FORMULAS

Formula pricing refers to establishing a transaction price using a formula that includes some other price as a reference. As such, formula prices are not discovered for each transaction. Rather, some other price is used, a price discovered external to the particular formula priced transaction

The source of the external price may be a USDA quoted price or a futures price

MOST FORMULAS ARE BASED ON A REPORTED NEGOTIATED PRICE (WESTERN CORN BELT)

Percent of Hogs Sold Through Various Pricing Arrangements Year Hog or Meat Formula Other Market Formula Negotiate d

A MAJOR ISSUE OR CONCERN IN LIVESTOCK PRICING IS THE DECLINE IN NEGOTIATED PRICES

THE PRICE A PRODUCER RECEIVES FOR HIS HOGS WILL BE THE FORMULA PRICE WITH PREMIUMS OR DISCOUNTS BASED ON YIELD

SELLING ON A GRADE AND YIELD BASIS A LARGE PERCENTAGE OF DIRECT SALES INVOLVE THE PRICING ON A GRADE AND YIELD BASIS

THE CARCASS IS PRICED NOT THE LIVE ANIMAL. A BASE PRICE IS ESTABLISHED BY THE PACKER THEN PREMIUMS AND DISCOUNTS ARE GIVEN BASED UPON THE LIVE WEIGHT TO CARCASS WEIGHT RATIO ( OVER A RANGE OF LIVE WEIGHTS)

Grid pricing consists of a base price with specified premiums and discounts for carcasses above and below a base or standard set of quality specifications. Grid pricing involves a formula for establishing the base price.

NATIONAL DAILY BASE LEAN HOG CARCASS SLAUGHTER COST FOR Mon, Feb 10, 2003 This report includes: Volume, Weighted Average Carcass Weight, and Base Cost Avg Base Cost (Packer Buying Programs) Head Carcass Backfat (Inches): Date Count Weight Percent Lean: 49-50% 51-52% 53-54% Date Volume Avg Carcass 49-50% 51-52% 53-54% Wt. 02/10/ , /07/ , /06/ , /05/ , /04/ , /03/ ,

IOWA/MINNESOTA DAILY DIRECT NEGOTIATED HOG PURCHASES MATRIX 185 lb Carcass Basis (Defined by Muscle and Fat) LOIN AREA/DEPTH (INCHES) BACK-FAT 4.0/ / / / / CARCASS WEIGHT DIFFERENTIALS 145# # # # # # # # #

THE SYSTEMS OF GRADE AND YIELD WILL VARY FROM PACKER TO PACKER

ORDER BUYERS THEY WORK AS BROKERS (DO NOT TAKE TITLE TO THE ANIMALS) MAY WORK FOR A PACKER (S) OR FEEDERS

ORDER BUYERS ARE PAID A COMMISSION THEY MAY SPECIALIZE IN A PARTICULAR TYPE OF ANIMAL (VEALERS)

ORDER BUYERS MAY ALSO WORK FOR PRODUCERS TO ACQUIRE FEEDER ANIMALS -- FEEDER AND STOCKER CATTLE AND FEEDER PIGS

LIVESTOCK DEALERS DEALERS TAKE OWNERSHIP OF THE ANIMALS. MAY SELL TO PACKERS, OR PRODUCERS DEALERS OFTEN SPECIALIZE IN FEEDER ANIMALS. SERVE AS A SALVAGE FUNCTION