The product of a good marketing plan is to receive the best possible price for finished hogs. Briefly stated, a good marketing plan is one that compares all pricing alternatives, then sells based on this comparison.
Commodity Market. For many producers, hedging hogs on the futures market has been considered too complicated. Few producers have an understanding of hedging or how it can help profitability. Hedging is simply a tool to lock in an acceptable future price for hogs, one that will insure profits or minimize losses, depending on the market. A futures contract covers 30,000 pounds, or about 130 230-pound pigs. Half and quarter contracts are also available. Some capital is involved (margin money). The amount depends on the number of contracts and the broker.
Options are a newer method of forward pricing. An options contract is an insurance policy. Hedging locks in a future price. Options lock in a minimum price. If the price rises above the locked-in price, the "option" would be not to use the contract. Options contracts are handled similar to other futures contracts-through a broker.
Selling Point. When selecting a selling point consider price, transportation, integrity of the market, and additional services. Hog markets vary greatly. Some offer forward pricing contracts where the producer agrees to deliver a specified number of hogs for a set price. These contracts are set several months in advance of the sale. At buying stations, the selling price is usually known on delivery of hogs. Some markets buy on a grade basis, where a premium is paid for US #1 grade hogs, and low quality hogs are docked in price. Distance to the market is also important. A price benefit can be offset by transportation charges. By taking some time to check on markets, you can get better prices for your hogs.
Selling Weight. Selling hogs at an ideal weight is another way to improve the price of hogs. Records and some knowledge of market prices are required to determine this weight. Market weights are determined to some extent by the market operators. Some, markets dock prices for hogs that are light (usually less than 220 pounds) or heavy (usually greater than 260 pounds). The actual weights vary at different markets. You can justify selling light hogs during periods of high feed prices and low hog prices. Low feed prices and high hog prices justify feeding to heavier weights. If you review previous feed records, labor costs, and current feed and hog prices, you can determine the ideal market weight.
Live Versus Carcass Price. In the past, market price was based on live weight and visual appraisal. Most packers today use carcass measurements to estimate carcass quality and value. This value is passed on to the producer directly or indirectly. Some packers will let you select whether to sell on a live or carcass basis. When selling on a carcass basis, the market price is determined by carcass weight, dressing percent or yield, and some estimate of carcass quality. A report showing the base price, premiums, docks, and the measurements used to determine value usually accompanies the check. Even when selling on a live basis, buyers will use information on previous loads to adjust the final price. Producers with lean hogs in the acceptable weight range will benefit from carcass-based pricing. Other producers may or may not benefit from carcass pricing. However, carcass quality will affect the price paid for market hogs, regardless of how they are marketed.