Transcript Livestock Marketing Decisions

Livestock Marketing
Price discovery
Pricing methods
Marketing decisions
Supply and demand
Price Determination and Discovery
Price Determination
• is the broad forces of supply and
demand establishing a market clearing
price for a commodity.
Price Discovery
• is the process by which buyers and
sellers arrive a a specific price for a
given lot of produce at a given location
for a specific time period.
Price Discovery
A human process, subject to relative
bargaining power of the buyer and
seller.
Two stage process
• Evaluate S&D and Pe
• Estimate the price for the specific trade.
Price Determination
and Price Discovery
S
P
Pe
D
Qe
Q
Centralized pricing
All buyers and sellers in one place at
one time.
+ Full and immediate information
+ Competitive bidding
+ Equalizes market power
- Transaction cost
- Physical movement of product
Decentralized Pricing
One-to-one negotiations
+ Reduced transportation cost
+ Reduced transaction cost
- Depends on skills and information
- Higher search cost
Hybrid markets
Electronic markets
• Centralized pricing
• Decentralized product movement
Examples
•
•
•
•
Satellite auctions
Electronic auctions
Tel-o-auction
E-commerce
Formula pricing
Price discovery from elsewhere
Formula contracts
• Spot market
• Cutout price
• Futures
Do you trust the underlying market for
price discovery?
Performance issues
“Least cost” method of price
discovery
Effect of the mechanism on price
behavior
Marketing v. pricing efficiency
Information and markets
Price reporting
• Role of the government
• Collection and dissemination and timely
reporting of prices that were discovered.
• Other private treaty buyers and sellers
incorporate new information into their
negotiation.
• Facilitates formula pricing
Livestock Marketing Decisions
What to sell
• Live, carcass, grid
Where to sell
• Type of market
• Location
When to sell
• Weight, grade, costs
What to sell
Live weight
• One average price for all live pounds
• Negotiated price before delivery or at
auction
• Weighing conditions important
» Mud, shrink (fill, time, stress)
• Was most common for hogs but not now
• Still common in large cattle feedlots, less
in Iowa
• Used for feeder cattle and feeder pigs
What to sell
Carcass weight (“in-the-meat”)
• One average price for all carcass pounds
• Negotiated price before delivery
• Dressing percent (also called yield)
» Important to compare bids
» Not important in determining value
• Farmer stands risk of trimming and
condemnation
• Common for fed cattle in Midwest
What to sell
Dressing percent
• DP = carcass weight / live weight
• DP hogs approximately 73-76%
• DP cattle approximately 61-64%
DP impacted by:
•
•
•
•
Weighing conditions
Shrink
Fat thickness
Genetics
What to sell
Value-based marketing
• Each carcass evaluated and priced individually
• Premiums and discounts determined ahead of
delivery
• Base price may be negotiated or come from formula
• Carcasses are graded and values assigned
• Farmer stands grading risk
• Different buyers have different systems
• Nearly all hogs
• Increasingly popular for fed cattle
Hog Carcass Weight Discounts
Carcass Weight
145#
155#
165#
175#
185#
195#
205#
215#
225#
Range
-27.70
-27.70
-10.39
-3.40
-1.36
-0.68
0.00
-3.00
-5.26
-8.16
-5.00
-0.67
0.00
0.00
0.00
0.00
1.36
0.00
IOWA/MINNESOTA DAILY DIRECT NEGOTIATED HOG PURCHASE MATRIX
LM_HG204, Fri, Aug 26, 2005, USDA Market News Des Moines, Iowa
Hog Carcass Price by Backfat and
Loin Eye Area
Hog Carcass Price by Loin Eye Area/depth (inches)
Backfat
4.0/1.4
5.0/1.7
6.0/2.0
7.0/2.3
8.0/2.7
0.40
62.00
75.05
63.50
75.00
65.00
75.00
66.00
76.00
66.00
76.00
0.50
59.50
75.05
62.00
75.05
65.00
75.05
66.00
75.00
66.00
76.00
0.60
59.50
75.60
62.00
75.60
63.50
75.60
65.00
75.60
66.00
75.60
0.70
59.50
75.60
59.50
75.60
62.00
75.60
65.00
75.60
66.00
75.60
0.80
57.50
75.60
59.50
75.60
62.00
75.60
63.50
75.60
66.00
75.60
0.90
57.50
72.10
59.50
72.10
59.50
72.55
62.00
73.05
65.00
73.80
1.00
56.50
72.10
57.50
72.10
59.50
72.10
62.00
72.10
63.50
73.05
1.10
55.50
67.90
57.50
68.05
59.50
69.05
59.50
70.27
63.50
71.66
1.20
55.50
67.90
56.50
67.90
57.50
67.90
59.50
68.87
62.00
70.96
1.40
52.00
64.00
55.34
64.70
55.34
66.09
56.86
67.48
56.86
68.87
IOWA/MINNESOTA DAILY DIRECT NEGOTIATED HOG PURCHASE MATRIX
LM_HG204, Fri, Aug 26, 2005, USDA Market News Des Moines, Iowa
Comparing bids
Price in appropriate $/cwt
Bid Price (live)
Bid Price (carcass)
Lean premium
Sort discount
Dressing percentage
Adjusted to live
Transportation
Net farm gate price
A
$44.50
------74.5
44.50
-.85
$43.65
B
--$59.50
+1.25
-.70
74.5
44.73
-.35
$44.38
Value-Based Cattle Marketing
Three factor impact premiums
1. Carcass Weights
2. Quality Grade Distribution (USDA Grader)
Based on marbling, proxy for eating
experience
3. Yield Grade Distribution (USDA Grader)
Based on lean meat yield
4. Other specs:
Product safety & quality assurance
Acceptable color
Youthfulness
Percent of Beef Grading Prime, Choice, or Select
80%
70%
60%
50%
40%
30%
20%
10%
Prime
Choice
Select
J-05
J-04
J-03
J-02
J-01
J-00
J-99
J-98
J-97
J-96
J-95
0%
Beef Yield Grade Percentages
60%
50%
40%
30%
20%
10%
YG 1
YG 2
YG 3
YG 4+5
J-05
J-04
J-03
J-02
J-01
J-00
J-99
J-98
J-97
J-96
J-95
0%
Value-Based Cattle Marketing
Common Ground for Targets
1. Carcass Weights
2. Quality Grade
3. Yield Grade
550 - 950 lbs
> Se+ or > Ch0
1’s and 2’s
Carcass Merit Grid and Premium Trends
Quality
Grade
Prime
+
Yield Grade
1
2
3
+$$$$$ +$$$$ +$$$
o
Choice and Choice
ChoiceSelect
Standard
Out Cattle
+$$$
+$$$
+$$
+$$$ +$$ Base
-$
-$$
-$$$
-$$$$ -$$$$ -$$$$
-$$$$$ -$$$$$ -$$$$$
4&5
-$$
-$$
-$$$
-$$$$
-$$$$
-$$$$$
Where are the Grid Rewards & Discounts?
Iowa Quality Beef Grid 2005
 Base: NE Wted Avg 65-80%
Choice
 Par: Ch YG3 =Base + $2.00 or
Plant clean up which ever is
greater
 Quality Grade
• Prime:
• Certified Angus:
• Select
• Standard
• Commercial
• Dark Cutters
• Other
$/cwt
$6.00
$3.50
USDA
-$15.00
-$30.00
-$30.00
-$30.00
Yield Grade $/cwt
1:
$4.00
2:
$3.00
3:
Par
4:
-$20.00
5:
-$25.00
Carcass weights$/cwt
Under 500 -$40.00
500-549
-$15.00
950-999
-$8.00
1000 & up -$35.00
Comparing Bids ($/carcass cwt)
Price in appropriate $/cwt
Base bid price
A
122.00
B
121.00
3%
45%
30%
60%
3%
-----------
+6.00
+3.50
-8.00
+2.50
-15.00
Transportation
Net farm gate price
-.65
120.35
-1.25
120.16
Prime
Top 2/3 Ch
Select
Yield 1&2
Off weight
Bid A is a straight in the meat bid, Bid B is a valued-based bid.
Where to sell
Terminal markets have declined
Auction markets important when assembly is
needed
• Feeder cattle and cull cows
• Growing interest in fed cattle in fringe areas
Direct sales
• Slaughter cattle and hogs
• Feeder pigs
• Growing in feeder cattle where source verification
is important
Feeder cattle sales
Live weight sales
• Various weight classes
• In general, lower $/# and heavier weights
Auction is major market
• Assembly function important
Video auctions
Direct trade
Premium paid for
• Large uniform lots
• Certification/verification ??????
Important market functions
Slaughter Cattle and Hogs
Direct sales most common
• Animals are delivered directly to the packing
plant
Spot or cash market
• Seller contacts buyer when ready to sell
• Negotiate price and terms on each group
Contract market
• May be for one group or an ongoing agreement
between buyer and seller
• Terms and pricing method determined ahead of
marketing date
Overview
Define contractual relationship
Evolution and status of hog industry
Describe marketing contracts
Motivation and concerns
Role for economists
Contractual Relationship
Focus today is not on internal transfer
Only relationship is the marketing
contract
Typically 3-10 years in length or evergreen
Defines delivery schedules, carcass
specifications, pricing, and in some cases
production practices
Small portion of contracts have risk
sharing provisions
USDA MPR Definitions




Negotiated: Purchased in the cash market for delivery
within 7 days.
Swine or pork market formula: A formula tied to the
cash market for hogs or pork cutout., i.e., weekly
average price, 3-day rolling average, percentage of the
cutout.
Other market formula: A formula tied to something
other than the hog market or pork cutout, i.e., feed
prices.
Other purchase agreement: Currently this includes
window contracts.
Percent of U.S. Hogs Sold Through Various Pricing Arrangements, January 1999-2009*
Year
99
00
01
02
03
04
05
06
07
08
09
Hog or meat
market
formula
44.2
47.2
54
44.5
41.4
41.4
39.9
41.8
38.3
37.1
41.2
Other market
formula
3.4
8.5
5.7
11.8
5.7
7.2
10.3
8.8
8.5
11.0
7.9
Other
purchase
arrangement
14.4
16.9
22.8
8.6
19.2
20.6
15.4
16.6
15.2
13.4
11.6
2.1
2.2
2.1
2.4
2.6
6.7
6.1
5.6
16.4
18.1
17.1
21.4
20
22.7
23.1
25.7
16.7
13.5
11.6
10.6
10.2
8.6
9.2
8.1
Packer-sold
Packerowned
Negotiated spot
35.8
25.7
17.3
Source; Grimes and Plain, University of Missouri http://agebb.missouri.edu/mkt/vertstud09.htm
Contract Specs
Product specifications
• PQA, Right to approve inputs
Method of pricing
• Which markets and formula
Delivery scheduling
• Short and long term
Exemptions
Types of Contracts
Formula
•
•
•
•
Most common contract
Price tied to another market, typically spot
No risk share
Examples:
» 3-Day rolling average of ISM weighted average
+$1.50
» Last week’s average excluding the high and low
» 92% of the previous day pork cutout value
Packer does not share risk
Types of Contracts
Fixed window
•
•
•
•
Formula tied to cash price
Predetermined upper and lower bounds
Share pain and gain outside window
Example: $50-60 and split 50/50 above and
below
Floating window
• Formula tied to cash price
• Boundaries move with feed prices
• Do not share outside of window
Packer shares risk
Weekly Hogs Prices, Cost of Production and Window
$70
$60
$50
$40
$30
$20
$10
Cash
COP
Floating Window
Fixed Window
J-01
J-00
J-99
J-98
J-97
J-96
J-95
J-94
J-93
J-92
J-91
J-90
$-
Types of Contracts
 Cost-Plus
• Price direct function of feed prices
• Fixed amount for non-feed costs + known margin
• Packer assumes all price risk
 Ledger
• Floor price is fixed or based on feed prices
• Producer is “loaned” the difference between floor
and lower cash prices
• Loan is repaid at higher cash prices
• Packer provides line of credit but not risk share
Weekly Hogs Prices, Cost of Production and Contract
$70
$60
$50
$40
$30
$20
$10
Cash
Cost +
COP
Ledger
J-01
J-00
J-99
J-98
J-97
J-96
J-95
J-94
J-93
J-92
J-91
J-90
$-
Motivations for Vertical Linkages
Consumer satisfaction
Moisture enhanced pork
Preference for attributes
Growing interest in safety and
production
Spot market not sufficient
Premiums and discounts
Market access and risk
Motivations for Vertical Linkages
Traditional IO theory
Avoid market power, reduce price
volatility, technology complements,
minimize transaction costs
Agency theory
Integrate rather than contract to
avoid opportunism and shirking by
contract partners
Motivations for Vertical Linkages
Asset specificity
Firms with more significant relationshipspecific investments (RSI) benefit from
predictable throughput and prices
As assets become more specialized, the
costs of using the spot market increases
Costs are particularly high when food safety
and product quality problems occur
encouraging greater process control
Accumulated Net Estimated Returns
One Hog Sold per Month
400
300
$564 drop in
28 months
200
100
0
J-100 93
-200
J94
J95
J96
J97
J98
J99
J00
J01
J02
J03
Attitude Toward Marketing Contracts by
Pork Producers with and without Marketing
Contracts
1 = strongly disagree, 6 = strongly agree
With Without
Coordinate slaughter to better meet Industry needs
Have caused lower cash market prices
Producers with contracts have received higher prices
Packers show preference in who was offered a contract
Contracts should be made illegal by Congress
Contracts should be more closely monitored by USDA
Prefer to market all my hogs on the cash market
3.7
4.2
3.9
3.5
2.7
4.0
3.0
2.9
4.2
3.5
3.5
3.1
4.0
4.1
Role for Economists
The information and characteristics that
consumers are demanding may require
tighter vertical linkages.
 Can the spot market provide the nonmeasurable process control for
consumers?
 If so, at what cost?
 Who will pay the added costs?
 Will greater control speed consolidation?
Role for Economists
The great success of formula pricing
contracts is likely to lead to its demise.
Producers want an agreement, but
fear thin markets.
How much volume is needed for
satisfactory price discovery?
Where should it take place?
Who should be involved?
Role for Economists
Concerns about contract linkages
negatively affecting prices
Research is inconclusive on price
impacts.
Thin market implications.
Arguments have been greater in the
industry where there is less
contracting.
Politically charged debate.
Contract Examples
Iowa Attorney General
• http://www.state.ia.us/government/ag/ag_contracts/
Contract concerns
• Will discuss more in market controversy
section
Share of Reported Pig Sales by Weight
Feeder Pig Trade
Price/head or live weight
40-60 pound classes
Weaned pigs (10-12 pounds)
Primarily direct trade
Rapidly declining auctions
Health and stress concerns
Premiums for
Large uniform, single source
Genetic history
70%
60%
50%
40%
30%
20%
10%
0%
2000
2001
2002
EW
40
2003
2004
50
Weaned Pig Weekly Volume by Formula and Spot Pricing
100000
90000
Formula
Spot
80000
70000
60000
50000
40000
30000
20000
10000
12/13/09
8/13/09
4/13/09
12/13/08
8/13/08
4/13/08
12/13/07
8/13/07
4/13/07
12/13/06
8/13/06
4/13/06
12/13/05
8/13/05
4/13/05
12/13/04
0
8/13/04
Spot market price
Often through a broker
USDA report
Formula pricing
Based on observable price
Spot market
Hog futures maybe corn & SBM
When to sell
 Classic production function
• Optimal selling weight is where MC=MR
• The cost of the next pound = the price of the next pound
 Cost per pound decrease then increase with weight
• Costs are a function of
» Genetic potential
» Cost of diet
» Opportunity costs of future production
 Price per pound increases then decreases
• Weight discounts outside optimal range
• Fatter carcasses are discounted
• Adding extra weight
Market timing
Cycles
Seasonals
Marginal costs and returns
Biological and price cycles
Cycle is a pattern that repeats itself
over a period longer than a year in a
relatively predictable pattern
JANUARY 1 TOTAL CATTLE INVENTORY
U.S., Annual
2009 = 94.5 Million Head
-1.6 Percent
19
49
19
54
19
59
19
64
19
69
19
74
19
79
19
84
19
89
19
94
19
99
20
04
20
09
Mil. Head
140
130
120
110
100
90
80
70
Livestock Marketing Information Center
Data Source: USDA/NASS
TOTAL CATTLE INVENTORY BY CYCLE
U.S., January 1
Mil. Head
135
125
115
105
95
85
75
65
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
193849
194958
195867
196779
197990
199004
200409
US December Market Hog Inventory (1,000) head
65,000
60,000
55,000
50,000
45,000
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
19
77
40,000
US December Hog Breeding Herd (1,000 Head)
10,000
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
5,500
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
19
77
5,000
What causes cycles
Response to economic signals
Time lag
• Psychology
• Biology
• Investment
Livestock
Tree crops
Land development
Cattle Cycle and Timing
Prices are cyclical
Heifer cost impact profitability
Calf prices impact annual income
Two alternatives
• Steady Size: Same number of heifers
• Dollar Cost Averaging: Same value of
heifers
Heifer Prices 1970-2008
140
Heifer Prices ($/cwt.)
120
Heifer and Offspring Price Comparison
1970's
1980's
1990's
2000's
1975
1985
1995
2005
80 Heifer
Offspring 1
60 Offspring 2
27.32
58.64
55.58
114.43
36.34
76.73
72.86
93.39
64.55
82.44
69.04
108.5
40 Offspring 3
Offspring 4
20
Offspring 5
77.33
82.76
80.41
95.38
66.65
90.63
90.35
57.76
82.89
83.72
100
0
1970
1975
1980
1985
1990
1995
2000
2005
Number of Cows and Heifers Calving
140
120
100
80
60
Average
104
40
DCA
20
Steady Size 100
05
20
00
20
95
19
90
19
85
19
80
19
75
19
19
70
0
Average Value Per Head by Strategy
$800
$750
$700
$650
$600
$550
$500
$450
$400
$350
$300
Steers
Heifers
SS
Cows
DCA
Return Over Cash Cost
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$$(10,000)
$(20,000)
DCA
Steady Size
05
20
00
20
95
19
90
19
85
19
80
19
75
19
19
70
$(30,000)
Herd Net Worth
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
DCA
$200,000
Steady Size
05
20
00
20
95
19
90
19
85
19
80
19
75
19
19
70
$-
Seasonal price patterns
Patterns that repeat themselves with
some degree of predictability within
a year’s time frame.
Driven by supply and demand
factors that are impacted by time of
year
• Weather
• Holidays
• Input prices
Seasonal Price Index for Iowa Fed Cattle and Hogs
115%
110%
105%
100%
95%
90%
Cattle
Hogs
pr
.
M
ay
Ju
ne
Ju
ly
A
ug
.
Se
pt
.
O
ct
.
N
ov
.
D
ec
.
A
M
ar
.
Fe
b.
Ja
n.
85%
$
MC
MR
Weight
Cost of Production
Raised livestock
• Farrow to finish, Cowherd to finish
• Accumulate cost from birth through
finish
• Relatively stable cost over time
• Impacted by input prices and
production
» Feed is typically 60-70% of cost
» Low productivity increases the cost of
those that make it to finish because the
fixed costs are divided by a smaller number.
Cost of Production
Purchased feeder livestock
• Derived demand for feeder animal
• Highly variable price
• Depends upon
» Expected selling price for finished animal
» Feed costs
Cost of production budgets
Starts with production function
Incorporates input prices
Project cost per unit sold
• Variable $/unit
• Total $/unit
http://www.extension.iastate.edu/agd
m/livestock/html/b1-21.html
Swine Production - Finishing Weaned 12 lb Pigs, Total Confinement - One Pig
Ag Decision Maker -- Iowa State University Extension
For more information see Information File B1-21 Livestock Enterprise Budgets.
Place the cursor over cells with red triangles to read comments.
Enter input values in yellow grid-lined cells.
Income
Market Hogs
Price
Unit
$0.00 per lb
Variable Costs
Weaned Feeder pig
Interest
Price
Unit
$32.00 per head
9%
Feed Costs
Corn
Soybean meal
Dried distiller grain
Vitamin & minerals
Pre-nursery diet
Feed Additives
Feed processing & delivery
Other
Total Feed Costs
$3.80
$0.15
$0.06
$0.45
per bu
per lb
per lb
per lb
x
Quantity Unit
260 lbs
=
=
$32.00
$1.18
=
=
=
=
$37.24
17.85
1.92
6.48
3.00
3.00
6.75
0.00
$76.24
Quantity
x
x
x
x
x
Unit
1 head
4.9 months
=
Total
$0.00
9.8
119.0
32.0
14.4
bu
lbs
lbs
lbs
Veterinary and medical
Fuel, repairs, utilities
Marketing, miscellaneous
Other
Manure application cost
Interest on variable costs
Death loss
Labor
Total Variable Costs
Income over Variable Costs
Fixed Costs
Facilities & equipment
Total All Costs
Income over All Costs
Break-even selling price for variable costs
Break-even selling price for all costs
$0.01 per gal
9%
$14.00 per hour
220
3
0.05
0.7
gal
months
head
hours
=
=
=
=
$5.00
4.20
4.00
0.00
2.20
1.03
1.60
9.80
$137.25
($137.25)
$11.28
$148.53
($148.53)
$52.79 per cwt
$57.13 per cwt
Using budgets in planning
Project a breakeven “point estimate”
Sensitivity analysis for key variables
Back calculate from revenue to what
you can afford to pay for feeder animal
Economic v. Financial costs
Objective Based Pricing Strategy
Feeder & Financing
+ Feed Costs
+ Operating Costs
+ Labor Costs
+ Fixed Costs
+ Desired Return
Cost/hd
$/cwt
729.24
186.71
30.46
36.55
24.63
25.00
60.77
76.33
78.87
81.91
83.96
86.05
550# steer calf fed to 1200 slaughter weight
How much to pay for feeder animal
Work back from total revenue
Cost/hd
Expected revenue
- Interest Costs
- Feed Costs
- Operating Costs
- Labor Costs
- Fixed Costs
- Desired Return
1020.00
41.74
186.71
30.46
36.55
24.63
25.00
550# steer calf fed to 1200 slaughter weight
$/cwt
185.45
177.87
143.92
138.38
131.74
127.26
122.71
Breakeven Purchase Price for 550# Steers
Fed Cattle Price
FCOG
$81
$83
$85
$87
$89
24.72
119
123
127
131
136
26.72
117
121
125
129
133
28.72
114
119
123
127
131
30.72
112
116
120
125
129
32.72
110
114
118
122
126
Corn
WDGS
hay
int
yard
other
$1.75
$32.00
$50
7%
$0.30
$30
Supply
Derived from cost function
• Production function
• Input - output relationship
Assume that firms seek to
• Maximize profits
• Minimize costs
Supply starts will individual firm
Market supply curves
S1
Px
A
S2
Move from A to B is a
change in quantity
supplied due to a price
decline.
B
C
Move from B to C is a
shift in supply.
Qx
Supply Shifts from Change
in input prices
in returns for competing enterprises
in price of joint products
in technology on yields or costs
in yield and/or price risk
institutional constraints
SUPPLY DOES NOT CHANGE DUE TO A
CHANGE IN PRICE OF THE OUTPUT
Demand considerations
Demand for meat by consumers
Derived demand for animal by
packers
Derived demand for feeder livestock
by feedlots and finishers
Law of Demand
All else equal consumers will by more
of a item at lower prices and buy less at
higher prices.
Demand begins with individual
consumer
Inverse relationship between quantity
and price
• Two dimensional, Price and Quantity
Downward Sloping
Demand Curve
Px
A
PA
B
PB
D
QA
QB
Qx
BEEF PRICE-QUANTITY RELATIONSHIP
$/lb Annual, Retail Weight, Deflated Choice Retail Price
4.40
4.20
4.00
08
3.80
3.60
3.40
3.20
04
05
03
07
06 91 90 89
93 01
92
02
94
95
00
96
99
97
98
83
84
88
85
86
87
3.00
62
67
72
Livestock Marketing Information Center
77
Factors that Cause a Shift in Demand
Price of substitutes
Price of complements
Consumer income
Taste and preferences
Population and exports
Government intervention
IS NOT FUNCTION OF THE GOOD’S OWN
PRICE
Derived Demand
S
Vertical distance is the difference
is price at 3 levels
There is cost associated with
moving from one level to the next
Px
Pretail
Pwholesale
Pfarm
Dretail
Cuts of meat
Dwholesale
Carcasses
Dfarm
Q
Animals
Qx
Derived Demand for Pork
Average retail price $/lb
$2.50
Value of trim and scrap $/lb
$0.10
Costs from whlse -retail $/lb -$1.00
The most retail will pay $/lb
$1.60
Retail pounds per carcass
100
The most retail will pay $/head $160
Derived Demand for Hogs
Wholesale carcass value $/hd
$160
Value hide and offal $/hd
$25
Costs to slaughter and fab $/hd
-$20
The most packer will pay $/hd
$165
Wholesale pounds per carcass
200
The most packer will pay $/lb
$82.50