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Prairie Swine Centre is an affiliate of the University of Saskatchewan
Prairie Swine Centre is grateful for the assistance of the George Morris Centre in developing the economics portion of Pork Insight.
Financial support for the Enterprise Model Project and Pork Insight has been provided by:
Agglomeration Externalities and Technical Efficiency in Pig Production
Posted in: Economics by admin on January 1, 2008 | No Comments
The objective of our paper is therefore to assess the effects of agglomeration externalities on the technical efficiency of French pig farms. This paper employs the non-parametric Data Envelopment Analysis (DEA), and in a second-stage truncated regression the impact of
agglomeration externalities based on theoretical
expectations is investigated. Using data about pig activity for 899
French farms in 2004, our results showed that farm
technical efficiency is as much increased by
concentration as it is the case for other businesses.
Reasons may be knowledge spillovers, labor force
matching and proximity to upstream and downstream
market. By contrast, the analysis did not reveal any
constrain due to increased land demand following the
environmental regulation.
To What Surprises Do Hog Futures Markets Respond?
Posted in: Economics by admin on | No Comments
We examine the response of hog futures prices to different measures of surprise resulting from the Hogs and Pigs Reports (HPR) announcements. We investigate whether the preliminary announcements and market expectations are rational forecasts for the period 1982–2002. We then assess the impact of alternative measures of new information from the announcements on hog futures prices. We find that HPR announcements are irrational estimates of final estimates and that market expectations are also irrational estimates of HPR announcements. First, while irrationality exists, HPR reports continue to demonstrate that they provide information to the market regardless of the form that is used to measure the effect. Second, the source of the irrationality in forecasting final and announced estimates is not clear, but because it emerges regardless of the supply variable examined, it makes sense to regard a factor such as a time-varying structural or technological change in the hog industry as a likely source. Finally, while we find that new information does indeed explain changes in prices, the degree of explanatory power is relatively small.
The value of market uncertainty in a livestock epidemic
Posted in: Economics by admin on | No Comments
This paper examines the adjustment of pig production to an animal
disease epidemic. We raise two major aspects regarding the adjustment. Firstly, even
if the characteristics of an epidemic depend on the structure of farming, agricultural
producers face a great uncertainty about the number of animals removed from market
and the duration of export distortions. Secondly, livestock production is inelastic in the short run. When an
outbreak occurs, producers are unable to quickly increase aggregate production
because it takes time to produce reproduction animals or to raise fattening animals.
Even if producers are able to decrease production in the short run e.g. by culling
animals prematurely, it may be costly for an individual producer to reduce yield levels
or the number of animals in stock unless policy or market explicitly provide incentives
for such behaviour. Results suggest that
trade ban duration can have large impact on losses. When the expected duration of the
trade ban increases, losses increase at an increasing rate for durations which we
simulated. Results also suggest that if export market become completely closed and
remain closed for sufficiently long time, meat market can in practice collapse. The modelling approach proposed in this paper has the potential to examine
how rationally behaving producers could adjust production after observing epidemics
and export shocks of different magnitudes. Models such as this are best suited for
comparing differences in results between scenarios. In contrast to this, the results of an individual scenario should be interpreted with caution, as they are affected by
parameter values, such as elasticity estimates, calibration values and production costs,
which are to some extend normative. Our approach could be complemented by more
thorough analysis of behaviour of consumers, producers and adjustment options. As
the duration of market shock seems to be important, an interesting application is to
combine epidemiological and economic models in order to study disease policy issues
such as emergency vaccination, where uncertainty and time play an important role.
Testing for Complementarity and Substitutability among Multiple Technologies: The Case of U.S. Hog Farms
Posted in: Economics by admin on | No Comments
This study develops and applies a tractable methodology that can show
how technologies complement or substitute for each other, information that is critical to
understanding the effect of technical innovation on industry growth and structure. Our findings suggest that the complementarity among technologies in large bundles is contributing to a form of returns to scale that is leading to increasing growth in average farm size. Because the technologies are complementary, the productivity of one technology is enhanced by the adoption of the other technologies. This provides an incentive for multiple technology adoption, but not all farms are equally able to adopt. We find that large farms run by younger and more educated operators are the most likely to adopt multiple technologies. This apparent size bias for multiple technologies is consistent with the view that new technologies are hastening the move toward larger farms in the U.S. pork industry.
Cash Settlement of Lean Hog Futures Contracts Reexamined
Posted in: Economics by admin on | No Comments
The purpose of the paper is to reexamine cash settlement of lean hog futures contracts as a
hedging tool, focusing on basis behavior and management of basis risk. To understand the
dimensions of the situation, first we compare hog futures contract basis level, variability, and exante
basis risk measured in terms of forecast ability between physical delivery and cash
settlement using data from 1985 to 2008 on hog cash and future prices. We then examine the
hedging usefulness of the current CME lean hog index and provide an alternative hedging
instrument—a regional basis contract—that takes into account location differences between
regional cash prices and the CME lean hog index. Our results indicate that basis has widened and
its variability prior to expiration has increased in the cash settlement period. However, we find
no evidence to suggest that ex-ante basis risk has increased, meaning that the ability to forecast
basis prior to expiration has declined little with cash settlement. Routine hedging with futures
contracts as expected reduces the variability in returns compared to cash sales. Including
location differences further reduces the variability in cash prices. Our results should be of value
to users of the hog futures markets and market analysts that offer pricing advice.
Incorporating Structural Changes in Agricultural and Food Price Analysis: An Application to the U.S. Beef and Pork Sectors
Posted in: Economics by admin on | No Comments
This paper proposes a protocol for agricultural and food price analysis, which goes beyond the existing practices of focusing on the time series properties of the variables in question, such as the existence of a unit root and of a
cointegrating relationship among nonstationary prices, by entertaining structural breaks when conducting those tests. Specifically, this study applies Perron’s unit root test and Gregory and Hansen’s cointegration
test (both of which allow for structural change of unknown timing) to the U.S. beef/cattle prices
and pork/hog prices. To obtain consistent estimates of the break dates in the retail beef,
wholesale beef and farm cattle price linkage equation and those in the retail pork, wholesale pork
and farm hog price relationship, the study employs Bai and Perron’s and Kejriwal and Perron’s
global sum of squares minimization procedure to search for the optimal break dates, utilizing the
principle of dynamic programming to ease the computation burden. The empirical results strongly suggest that beef/cattle prices are nonstationary, while there is ample evidence to support the conclusion that pork/hog prices are stationary.
Consumer knowledge and meat consumption at home and away from home
Posted in: Economics by admin on | No Comments
This study examines whether or not dietary knowledge affects consumption of beef, pork, poultry, and fish at home differently from it does consumption away from home. It is found that dietary knowledge decreases consumption of beef and pork at home and away from home but does not affect poultry or fish consumption in either location. Men eat more meat and fish than women, meat consumption declines with age, and regional and racial/ethnic differences are present.
When markets move to extremes, fallout is assured and business fatalities become a reality.
Posted in: Economics by admin on | No Comments
Norlin Gutz has been raising hogs for over 35 years. “I was buying pigs on the open market. Whenever my feed distributor had a finishing tloor come open, I would place the pigs, he would get the feed business and 1 could make a little money, That’s how I got started,” Gutz explains. In 2001, Gutz bought a 1,200-sow unit with a nursery and a house north of Albert Gity, IA. It had set empty for three years,” he notes. “Our costs were below the industry
average. Weaning averages were running at about 9.3 pigs/litter. Even when costs began escalating, our costs were
still below $34/pig. Our facility costs were very low,” he says. The situation took a bad turn in the summer of 2007, however, as Canadians began sending more pigs to the area and pig prices dropped to about $10. In late February, Gutz bad 12,000 pigs on feed on sites that were old and not very efficient, but they were all that was available.
In early March, the local banker that carried the loan asked Gutz to form a liquidation plan. He did. The last sows
farrowed the first week of lune. The unit closes down a month later. Worse yet, Gutz is trying to find positions for eight employees – all hired through the worker exchange program, Gommunicating for Agriculture. “I don’t know where the situation in the livestock business will lead. It has upset the whole structure of the industry. A year to 18 months down the road. I think there will be some terrible consequences for jobs that are related to the livestock industry — especially in Iowa where we are so tied to the livestock industry,” he says. “As for my future, we are still sorting that out. I doubt I will be involved with hogs. It would be hard to get involved again once your heart has been broken.”
Economic hysteresis in hog production
Posted in: Economics by admin on | No Comments
Firstly, we intend to identify determinants that influence capacity adjustments in hog production. An understanding of the adjustment behaviour of hog producers is essential to predict or to control the structural change in this industry.
Secondly, from a more theoretical viewpoint, we wish to contribute to the empirical validation of real options models. Our results draw the attention to sunk costs and uncertainty. An important implication of our results is that the observed inertia in capacity adjustments need not to be interpreted as a kind of inefficiency. This knowledge is helpful for the design of measures falling into the second pillar of the common agricultural policy (CAP) like for example investment programmes and retirement programmes.
Seeking more full-value pigs
Posted in: Economics by admin on | No Comments
This article reviews some of the key performance indicators (KPIs) which provides a closer look at the impact of various farrowing room management techniques on overall productivity. The KPIs are drawn from the near-million-sow database of Swine Management Services (SMS), Inc., Fremont. NE. From the data collected, it is clear that some practices can improve farrowing room performance. Pork producers should evaluate all practices, such as extended farrowing hours and induced farrowing, to determine whether they provide the level of performance improvement necessary to justify the additional expense associated with them. The data does not show, however, the variation in performance that some farms realize, while others fail to experience a similar advantage.