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thesis entitled

A Comparison O£3w1ne Marketing .
Methods in Michigan _ .1

presented by
Paul Marshall Sloan * ‘

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has been accepted towards fulfillment
of the requirements for

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A COMPARISON OF SWINE MARKETING METHODS IN MICHIGAN
By
Paul Marshall Sloan

A THESIS

Submitted to
Michigan State University
in partial fulfilment of the requirements
for the degree of

MASTER OF SCIENCE

Department of Agricultural and Extension Education

1996

ABSTRACT
A COMPARISON OF SWINE MARKETING METHODS IN MICHIGAN
By
Paul Marshall Sloan

The author surveyed 122 pork producers in Michigan, in order to compare the
six marketing options found within the four predominant methods of marketing
swine. Comparisons were based on various respondent, farm, and production
characteristics, marketing revenues and expenses, as well as the use of marketing
information. The data was analyzed using descriptive statistics and various
analyses to measure and quantify relationships between variables.

A statistically significant difference in net price received on a per hundred
weight basis, was found to exist between the "Direct to Packer" option and; (1)
the "Packer Buying Station", (2) the "Michigan Livestock Exchange-Yard", and
(3) the "Independent Assembly-Auction" options. The difference in price
received between the highest returning option (Direct to Packer), and the lowest
returning option (Independent Assembly-Auction), was $4.96/cwt.
Approximately 55% of the variation in net price could be explained by: (1) the
choice of options; (2) the-frequency of marketings; (3) the identity of the primary

purchaser (packer); (4) and the farm size.

ACKNOWLEDGEMENTS

The Comparison Of Swine Marketing Methods In Michigan was made possible
through the support of the Ontario Pork Producer's Marketing Board, and
Ridgetown College of Agricultural Technology. My gratitude is extended to all
respondents who took time out of their schedules to complete the questionnaire.
There are a number of people in need of recognition for assisting with this study.
They include: Dr. Brewer, Dr. Schwab, Dr. Whims and Dr. Suvedi, at Michigan
State University; Sam Hines, Voni Carter and the Staff of the Michigan Pork
Producer's Association; Dale Brown, Michigan State Extension Swine Specialist;
Mike Bigelow, Vice President of Marketing for the Michigan Livestock
Exchange; Ken McEwan, Peter Epp, Carolyn Lucio, Elaine Schneider, and Randy
Ross at Ridgetown College; and Alex Rosenberg of the Policy Analysis Branch.
Appreciation is also extended to the various industry personnel and producers

who enlightened me along the way.

TABLE OF CONTENTS

CHAPTER I RESEARCH PROBLEM

1.1 Introduction ....................................................................................................... 1
1.2 Basic Conditions ............................................................................................... 3
1.2.1 Market Cycles ......................................................................................... 4
1.2.2 Production Trends ................................................................................. 5
1.2.3 Packer/Processor Trends ....................................................................... 7
1.3 Elements of Market Structure ........................................................................... 9
1.3.1 Producer (Seller) Concentration ........................................................... 10
1.3.2 Barriers to Entry and Exit for Swine Producers ............................... 12
1.3.3 Packer/Processor (Buyer) Concentration ......................................... 13
1.3.4 Barriers to Entry and Exit for Packers/Processors ........................... 15
1.3 5 Product Differentiation ....................................................................... 16
1.4 Purpose of the Study ....................................................................................... 17
1.5 Research Objectives ......................................................................................... 17
1.6 Limitations of the Study ................................................................................. 18
1.7 Assumptions ..................................................................................................... 19
1.8 Importance of the Study ................................................................................. 19
1.9 Hypotheses ..................................................................................................... 20
1.10 Definition of Terms ........................................................................................... 20
1.11 Overview ........................................................................................................... 23

iv

CHAPTER II REVIEW OF LITERATURE

2.1
2.2
2.3

2.4
2.5

Introduction ..................................................................................................... 24
Industrial Organization ................................................................................... 24
Agricultural Commodity Subsector Studies ................................................. 26
2.3.1 Description of Subsector Studies ....................................................... 29
2.3.2 Hog/Pork Subsector Studies ............................................................... 30
Marketing Studies Within The Hog/Pork Subsector ................................... 31
Summary ........................................................................................................... 35

CHAPTER III STRUCTURE/CONDUCT OF THE HOG/PORK SUBSECTOR

3.1
3.2
3.3
3.4
3.5

3.6

AND THE ROLE OF THE FOUR MARKETING METHODS

Introduction ..................................................................................................... 36
Price Discovery ................................................................................................. 36
Vertical Coordination and Integration ......................................................... 39
Market Pricing Information Sources ............................................................. 43
Marketing Methods ......................................................................................... 45
3.5.1 Co-operative Marketing ..................................................................... 45
3.5.2 Direct to Packer Marketing ................................................................. 48
3.5.3 Independent Assembly Marketing ................................................... 50
3.5.4 Packer Buying Stations ....................................................................... 51
Summary ........................................................................................................... 53

CHAPTER IV METHODOLOGY

4.1
4.2
4.3
4.4

Population and Sample ................................................................................... 54
The Instrument ................................................................................................. 55
Data Collection and Analysis ......................................................................... 56
Summary ........................................................................................................... 58

CHAPTER V RESULTS

5. 1 Introduction ..................................................................................................... 59
5.2 Characteristics of the Marketing Methods ................................................... 60
5.2.1 General Farm ......................................................................................... 61
5.2.2 Demographic ......................................................................................... 64
5.2.3 Financial ................................................................................................. 66
5.2.4 Production ............................................................................................. 69
5.2.5 Marketing ............................................................................................. 73
5.3 Net Price Received ........................................................................................... 88
5.4 Producer Perceptions ..................................................................................... 96
5.5 Market Price Information Sources ................................................................... 99
5.6 Information Sources Used For Market Method Evaluation ..................... 102

CHAPTER VI SUMMARY, FINDINGS, CONCLUSIONS/IMPLICATIONS

6.1 Summary ........................................................................................................... 104
6.2 Findings ............................................................................................................. 106
6.3 Conclusions/Implications ............................................................................. 116
LIST OF TABLES ......................................................................................................... vii
LIST OF FIGURES ......................................................................................................... xi
LIST OF APPENDICES ................................................................................................. xii
BIBLIOGRAPHY ......................................................................................................... 157

vi

Table 1.1

Table 1.2

Table 2.1

Table 2.2

Table 3.1
Table 5.1

Table 5.2

Table 5.3

Table 5.4

Table 5.5

Table 5.6
Table 5.7

LIST OF TABLES

Percent of Producers Shipping Fewer than 2,000

Hogs Annually ..................................................................................... 6
Capacity of The Largest US. Hog Slaughtering

Firms 1992 ............................................................................................. 8
Relationship of Co-ordination Achieved to Co-ordination
Mechanism and Associated Pricing Method ................................... 28
Marketing Outlets Used by Large US. Hog

Producers, 1980 ................................................................................... 34
Weighted Average Hog Prices Received by Farmers ..................... 38
A Ranking of the Swine Enterprise by Primary

Marketing Option ................................................................................. 62
Farm Business Types Associated With Each Primary

Marketing Option ................................................................................. 62
The Tillable Acreage Cropped by Primary

Marketing Option ................................................................................. 63
The Age Distribution Within Each Primary

Marketing Option ................................................................................. 65
The Education Level of Respondents by Primary

Marketing Option ................................................................................. 66
Value of Farm Assets by Primary Marketing Option ....................... 67

Net Farm Income Distributions by Primary
Marketing Option ................................................................................. 68

Table 5.8

Table 5.9

Table 5.10

Table 5.11

Table 5.12

Table 5.13

Table 5.14

Table 5.15

Table 5.16

Table 5.17

Table 5.18

Table 5.19

Table 5.20

Table 5.21

Sow Herd Sizes of Farrow to Finish Respondents by
Primary Marketing Option ................................................................. 70

Sources of Replacement Stock for Farrow to Finish
Respondents by Primary Marketing Option ................................... 70

Usage of Selected Production Practices by Primary
Marketing Option ................................................................................. 72

 

The Percentage of Hogs Sold Through Each Marketing
Option Via Various Outlets, and the Number of Options
Primarily Used in the Last Five Years ............................................... 74

The Relative Ranking of Marketing Factors Used
in Determining the Option Chosen, Combined Means
of All Marketing Options ................................................................... 76

The Number of Hogs Sold by Primary Marketing Option ............. 78

Live Weight, and Basis For Payment of Hogs Sold by
Primary Marketing Option ................................................................. 78

Premiums, Discounts and Costs Per Hundred Weight (Live)
Associated With Each Primary Marketing Option ......................... 80

A Comparison of Characteristics Associated With the Live
Weight and Grade & Yield Basis Of Selling Hogs ........................... 81

The Percentage of Hogs Purchased by Various Packers
Within Each Primary Marketing Option ........................................... 83

The Importance of Selected Factors in Determining
the Paclker Chosen, Combined Means of All Relevant
Marketing Options ............................................................................... 83

 

The Frequency of Hog Marketings by Primary
Marketing Option ................................................................................. 85

The Percentage of Hogs Sold Using Various Price
Risk Management Options Within Each Primary
Marketing Option ................................................................................. 85

Distance to the Nearest Marketing Method Location From
Respondents Farms, by Primary Marketing Option ....................... 86

Table 5.22

Table 5.23

Table 5.24

Table 5.25

Table 5.26

Table 5.27

Table 5.28

Table 5.29
Table 5.30

Table 5.31

Table 32

Table 33

Table 34

Table 35

Table 36

The Relative Ranking of Selected Factors Affecting

Price, by Primary Marketing Option ................................................. 87
A Comparison of the Average Net Prices Received

by Primary Marketing Option ............................................................. 89
Significant Differences in the Net Price Received,

Means for Each Primary Marketing Option ..................................... 90
Correlation Analysis Measuring the Linear Association

of Selected Variables With Net Price ................................................. 91
Regression Analysis Measuring Parameters Influencing

Net Price Received - 1 ......................................................................... 92
Regression Analysis Measuring Parameters Influencing

Net Price Received - 2 ......................................................................... 93
Regression Analysis Measuring Parameters Influencing

Net Price Received - 3 ......................................................................... 95
Scoring of Selected Criteria (Means for All Respondents) ........... 98

The Ranking of Selected Market Price Information
Sources by Primary Marketing Option ........................................... 100

Information Sources Used to Evaluate the Marketing
Methods, Combined Means for All Respondents (N=121) ........... 103

The Relative Ranking of Marketing Factors in Determining
the Option Chosen, by Primary Marketing Option ....................... 135

Premiums, Discounts and Costs Per Hundred Weight (Live)
Associated With Each Primary Marketing Option ....................... 138

The Importance of Selected Factors in Determining the
Packer Chosen, by Relevant Marketing Option ........................... 139

Significant Differences in the Net Price Received, Means
for Each Marketing Option (Detailed Analysis) ........................... 140

Regression Analysis Measuring Parameters Influencing
Net Price Received - 1 (Detailed Analysis) ..................................... 141

ix

Table 37

Table 38

Table 39

Table 40

Regression Analysis Measuring Parameters Influencing
Net Price Received - 2 (Detailed Analysis) ..................................... 142

Regression Analysis Measuring Parameters Influencing
Net Price Received - 3 (Detailed Analysis) ..................................... 143

Scoring of Selected Criteria, by Primary
Marketing Option ............................................................................... 145

Information Sources Used for Market Method
Evaluation, by Primary Marketing Option ..................................... 151

LIST OF FIGURES

Figure 1.1 Structure-Conduct-Performance Paradigm ......................................... 2

Figure 2.1 Pork Subsector Production and Marketing Model ......................... 32

xi

LIST OF APPENDICES

APPENDIX A ............................................................................................................... 126
APPENDD( B ............................................................................................................... 135
APPENDIX C ............................................................................................................... 1 3 8
APPENDIX D ............................................................................................................... 139
APPENDD( E ............................................................................................................... 140
APPENDIX F ................................................................................................................. 145
APPENDIX G ............................................................................................................... 151

CHAPTER I
RESEARCH PROBLEM

1.1 INTRODUCTION

The swine industry in Michigan is directly impacted by a dynamic and
constantly changing global, social, political and economic environment. This
changing environment has formed the structure of the industry that exists today.
There are many external pressures that have shaped the Michigan swine industry
into its present form. These influences include recent developments and
evolution in the areas of political structures, environmental awareness, consumer
preferences, finances, interest rates, trade, mechanization, and supply and demand.
"Participants in the swine sector -- producers, packers and processors -— must
continuously interact with this changing world" (Hogberg, Schwab, 1992). Pork
production in the United States, the second largest meat industry in the nation,
has increasingly become a white collar job. The ability of a hog operation to be
profitable is influenced more by business decisions, than by longer and harder
hours spent on the job.

The research problem of this study is to examine the alternative marketing
strategies of hogs in Michigan and evaluate their performance within the
hog/pork subsector. The conceptual framework used in this study is an
adaptation of the structure-conduct-performance paradigm of industrial
organization theory. This adaptation was developed by Henderson (1975) and
Marion (1976), and is the general framework and classification scheme used by

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In this study, four marketing methods of hogs in Michigan will be examined.

These four methods are representative of the most predominant marketing
strategies of swine in Michigan. They are as follows; direct to packer, packer
buying stations, co-operatives, and independent assembly or organizing
(broker/trucker/auction). Within these four predominant marketing methods there
are six subsequent marketing options available to producers. In order to properly
address the research problem identified in this study, the performance of the
marketing methods and subsequent options will be analyzed using the net price
received. For the purpose of this study the net price received is defined as: the
difference between the gross price including premiums (i.e. the price before
deductions) and the direct marketing costs (commission, transportation fees,
insurance, etc..).

The basic conditions found within the hog/pork subsector will be discussed
next, followed by elements of market structure. The remainder of the chapter
introduces the purpose of the study, research objectives, limitations of the study,

assumptions, importance of the study, hypotheses and definition of terms.

1.2 BASIC CONDITIONS
The basic conditions found within the hog/pork subsector as defined by the
subsector structure-conduct-performance paradigm include; market cycles,

production trends, and packer processor trends.

4

1.2.1 Market Cycles

The structural changes that have taken place in the last twenty years have had
a dramatic impact on the hog producers in the hog/pork subsector. An industry
once dominated by part-time mixed grain farmers who would enter and exit the
business depending upon profit potential, has been supplanted by modern,
efficient and economically competitive hog operations operating on a full-time
basis. These operations have in turn affected a number of factors, including the
length and amplitude of the hog cycle, as well as improved productivity. By
combining the latter with heavier shipping weights, the amount of pork produced
per sow has increased significantly. The figure is approximately 3318 pounds per
sow annually, which is 138% more than was produced in 1980.

The hog cycle itself is constantly recurring. A high demand for pork and a low
supply creates the high points or "peaks" (highest return per pound), while low
demand and over production lead to the low points or "troughs" (lowest return
per pound). This cycle previously occurred over a longer period of time (4-5
years), slowly building from a trough to a peak, and then declining back to the
trough. The peaks and troughs had greater amplitude as well, with the margin
between the two being extremely significant. Presently, due to the reasons
mentioned in the previous paragraph, the cycle is shorter, with less amplitude or

margin between peaks and troughs.

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1.2.2 Production Trends

During the period of 1980 to 1992, the number of hog farms in the U.S.
declined by approximately 60 percent. The trend in Michigan is much the same
with approximately 48 percent of the swine farms exiting the business. There are
approximately 5,000 hog producing farms remaining in Michigan. As the number
of swine farmers has decreased however, total production, in terms of pork
produced, has increased. This would indicate that the remaining production is
becoming increasingly concentrated on fewer farms. "Approximately 23 percent
of all Michigan hogs marketed in 1987, came from farms marketing more than
5,000 head per year" (Extension Bulletin E-1676, 1990). Nationally, this placed
Michigan 9th in terms of large scale hog farming (number of hogs marketed from
farms selling more than 5000 head), and 3rd in the national rank in growth of
marketing during the period of 1982-87. "Most experts contend that the number
of sows per farm must increase, with perhaps 1,000 as the ultimate objective"
(Phillips, 1994).

"Large operations such as Tyson, Carroll Foods of Warsaw and Premium
Standard Farms already control about 15 percent of the supply, and could capture
25 percent within five years. Grappling with this reality, independent producers
are attempting to attain economies of scale and marketing benefits similar to
integrators" (Marbery, 1994). Within five years, America's top 10 hog producers
will have 1.2 million sows, more than double the present 500,000 (Coates, 1994).

The maturation of the pork industry itself may also impact on the trend to large
specialized hog farms. This trend to large operations does offer a distinct

advantage in that they can negotiate discounts for bulk purchases. Size

6

however, does have it's disadvantages, one of which is the human factor.
"Employees generally, do not make a complete commitment to animals they don't
own. An increasing number of reports from the U.S. suggests there are incipient
difficulties in extremely large herds, because of demands of corporate owners and
the sows often diverge" ork Producer, Winter 1993/94).
"The senior staff turnover at mega enterprises has become too
frequent...there are very few really skilled people around. You can't have
a rapid turnover in that sort of business without inviting trouble" (Watson,
1994).
As well, Plain states:
"It is very difficult for diversified operations to manage themselves as
efficiently as large, specialized ones. Typically, farmers are not the best
people managers. A small farmer cannot fire the manager, because he is the
manager. Large operations do not normally have this problem" (Ref.
1994).
The marketing demographics of U.S. hog producers, for selected states, was
examined by Chris Hurt, and presented in the Midwest Swine Tour (See Table

1.1).

Table 1.1 Percent of Producers Shipping Fewer Than 2,000 Hogs Annually

 

 

 

 

 

 

 

 

 

North Carolina 17%
Indiana 48%
Illinois 5 5 %
Iowa 70%
Minnesota I 73 %

 

McEwan and McCutcheon, 1992.
Michigan was not quoted in these statistics, however in 1987 Michigan farms

marketing fewer than 5,000 hogs annually comprised 77% of all marketings in the

7

state (Extension E-1676, October, 1990).

1.2.3 Packer/Processor Trends

The slaughter/packer/processor indUstries in the US have shown a trend similar
to the production industry. They have gone through a comparable consolidation
period, and presently fewer numbers deal with greater amounts of pork each year.
The rate of consolidation, however, is much slower than in the production sector.
"By the end of 1993 there will be 18 U.S. plants capable of slaughtering in excess
of 2.5 million head per year. There are an additional 27 plants with the capacity
to slaughter between 1 and 2.5 million head annually. The largest 47 plants (14%
of the total) slaughter 92% of the U.S. hog supply" (Sparks Companies Inc.,
1993). "In March 1992, the four largest firms accounted for 42.4% of the
slaughter capacity being used at the time, and 44.5% of 1991’s federally inspected
slaughter" (Hayenga, Kimle, 1992). See Table 1.2.

Agricultural economist Bruce Marion has completed studies regarding packer
sizes, which indicate "that when the top four packers control most of the
slaughter of fed beef, producers get about $1/cwt less than in areas with more
competition", (Looker, 1993). Studies completed by Charles Heyneman found
that "when Wisconsin lost packers in the late 1980's, live hog prices dropped by
$1 to $2 per cwt", (Looker, 1993). Reduced competition due to the loss of
packers explains some of this. The study estimates that "hog producers get about
$1.40/cwt less in regions where the top four packers account for 90% of

slaughter than where they control only 50%" (Looker, 1993).

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Table 1.2 Capacity of The Largest U.S. Hog Slaughtering Firm 1992

 

1. IBP Inc.

2. Monfort

3. John Morrell (Chiquita Brands)

4. Excel Corp. (Cargill)

5. Smithfield Foods Inc.

6. FDL Foods Inc.

7. Geo. A. Hormel & Co.

8. Farmland Foods Inc.

9. Sara Lee Corp.

10. Thorn Apple Valley Inc.

11. Indiana Pack. (Ferruzzi/Mitsubishi)
12. Lundy Packing Co.

13. Mariah Packing Inc. (Purina Mills)
14. Hatfield Quality Meats Inc.

15. Farmstead Foods (Seaboard)

16. Wilson Foods (Doskocil Cos. Inc.)
17. Clougherty Packing Co.

18. Dakota Pork Ind. (American)

19. Iowa Packing Co.

20. Worthington Packing Co.

21. Fisher Packing (Int. Fish & Meats)
22. Premium Pork Products (Lykes)

"Together, the 22 companies listed handled about 91% of the hogs slaughtered
under federal inspection in 1991" (Hayenga, Kimle, 1992).

Daily % of Industry
Slaughter Capacity Slaughter Capacity
60,800 15.6%
48,112 12.3%
32,500 8.3%
24,250 6.2%
18,900 4.8%
17,650 4.5%
17,200 4.4%
15,800 4.0%
15,000 3.8%
14,500 3.7%
13,000 3.3%
12,000 3.1%
11,000 2.8%
10,000 2.6%
8,000 2.0%
6,100 1.6%
6,100 1.6%
5,800 1.5%
5,500 1.4%
4,700 1.2%
4,350 1.1%
4,200 1.1%

 

A (.1

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9

Presently, the packers are actively involved in further processing the live hogs
they are buying. This has resulted in the production of various products, such as
boneless hams. Previously, packers sold products such as "bone-in" to retail or
food service customers, or were packer/processors with a strong regional or
national product label. This trend to further processing has increased the
complexity of price discovery at the pork product level. New product standards
have also arisen from this practice, including "commodity" pork and "select"
products, which have created a two tier price structure. Thus pork which is
further processed tends to rise into the upper level of the two tier price structure.

An example of this increased level of processing, and also the trend toward a
leaner product, was stated in Pork:

"The Louis Rich Co., a division of Oscar Mayer Foods Corp., Madison,
Wis., has launched a line of prepackaged cold cuts called Louis Rich
Carving Board Meats.

The company says the line has the taste and texture of carving board-
style meats. The three pork products include: traditional carved baked
cooked ham, thin carved honey ham and traditional carved smoked ham.
All are 96 to 98 percent fat free", (Staff Writers, January, 1994).

Packer/processors are striving to improve and refine their products to meet the

changing needs of today's health conscious consumer.

1.3 ELEMENTS OF MARKET STRUCTURE
Five elements of market structure identified by Richard Caves, will be examined
within the context of the hog/pork subsector (Ref. 1992). These elements are;
producer (seller) concentration, barriers to the entry of firms, barriers to the exit of
firms, packer/processor (buyer) concentration, and product differentiation. In this

study barriers to entry and exit of firms will be combined.

10

1.3.1 Producer (Seller) Concentration

The Corn Belt Region is located in the central portion of the U.S. It is
comprised of two sub regions, East and West. The Eastern Corn Belt includes
various sized portions of the states of Illinois, Indiana, Ohio, Michigan,
Pennsylvania, Kentucky, and Tennessee. The Western Corn Belt encompasses
the states of Iowa, Minnesota, North and South Dakota, Wisconsin, Missouri, and
Nebraska. Combined, the two sub regions produce over 75% of the U.S. pork
supply, and have approximately 56% of the hog farms.

The Eastern Corn Belt, although a major agricultural area, relies on a large
industrial base to support the relatively large population. The large population
base of this region contributes to its significance as a pork consumer. There is an
inequality in the region though, in that pork production is greater than
consumption. The difference is such that between the years 1975-1990, the
region was a net surplus supplier of approximately 1.5 billion pounds of pork. As
well, a few key facilities have closed further reducing slaughter capacity.
Another influencing factor is that the packers are close enough to the Canadian
border to purchase some of the Eastern Canadian hog supply, which they do
even though there is a surplus in the region. This is primarily due to the
difference in exchange rates, and demands for the lean Canadian hog carcasses.

The surplus of hogs in this region have made it a net supplier of hogs for other
regions, primarily the Western Corn Belt and Eastern Seaboard states. Even
though the region has a hog surplus, Michigan itself is a hog deficit state (USDA
and Iowa State University, 1992). This means that Michigan packing plants

slaughter more hogs than are produced in the state. Approximately 1.3 million

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live hogs (or pre-slaughtered hogs) needed to be shipped into Michigan in 1991.
Kentucky and Pennsylvania were also deficit in hogs however not to the same
extent as Michigan, 1.2 million and 0.7 million respectively (USDA and Iowa
State University, 1992).

This is in direct contrast to the other states in this region, who even when
combined with the three deficit states, were surplus 2 million hogs (USDA and
Iowa State University, 1992):

"Indiana producers have long lamented the state's lack of pork packers. Its
packers can only process about half the hogs its producers raise and

Indiana hog prices relative to U.S. prices have dropped noticeably in the

last decade. Kansas and Ohio producers suffer similar fates" (Clanton,
1992).

Whether individual states are classified as deficit or surplus is overshadowed by
the fact that the region as a whole has experienced a significant reduction in hog
farm numbers and a decrease in pork production in the last 15 to 20 years.

The Western Corn Belt, is one of only two regions which have expanded pork
production in the last 15 to 20 years, the other being the Virginias/Carolinas. The
Western Corn Belt region has the largest concentration of hogs found anywhere
in North America. This increase in production when combined with the Eastern
Regions' slight reduction, still results in a relatively stable 75% of the hog
industry remaining in the central portion of the country. Despite the growth and
amount of pork generated, the region is still hog deficit, leading to significant
regional price relationships and differences. This is a direct result of fierce packer
competition in the key hog producing areas. An illustration of the price
differences can be seen in the 1991 gross receipts per sow per year; $1724 in the

Western Corn Belt and $1531 in the Eastern Corn Belt (Sparks Companies Inc.,

 

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1993).

The above mentioned Virginias/Carolinas and two other regions, Colorado and
Nebraska, and Oklahoma and Arkansas deserve mention at this point. The Sparks
Companies Inc. study stated the following:

"The region on the east coast of the U.S. that includes Virginia and the
Carolina states has undergone tremendous expansion in pork production.
The number of farms producing hogs in this region has declined sharply
over the past 20 years. Coincidentally, pork production has risen
significantly. This region has the highest concentration of vertically
integrated and vertically co-ordinated production.

There are two other regions of the country where the study expects the
hog supply to be increasing in both absolute terms and relative to the
remainder of the country. In the past several years, there has been an
increase in large scale hog production in Colorado and Nebraska and also
in Oklahoma and Arkansas. These states have adequate access to, if not
surplus supplies of grain, low population centers and are agriculturally and
environmentally more friendly. The production in Oklahoma and Arkansas
is being fuelled through vertical integration by Tyson. The expansion in
Colorado and Nebraska is a broad mixture of corporate and mixed farming
operations", (Ref. 1993).

1.3.2 Barriers to Entry and Exit for Swine Producers

In the past barriers to entry and exit in the hog/pork subsector have been low.
As described in the basic conditions section under market cycles, producers were
able to enter and exit hog production at will. They could, "stay in it as long as
profits were significantly better than alternative enterprises, and exit without
sacrificing large sunk costs. This is not true for the large confinement hog
operations that have grown rapidly in importance. These producers have large
sunk costs and specialized facilities. They are committed to the hog business"
(Marion, 1986). This is also known as asset fixtivity.

This is not only true for large operations but all producers who are specializing

13

in pork production, and investing capital in facilities and equipment, which is
often a characteristic of this move toward specialization. The need to specialize
and increase capital expenditures, in order to stay competitive, may very well

push the entry and exit barriers to relatively high levels.

1.3.3 Packer/Processor (Buyer) Concentration

The geographic locations of the packing plants are also becoming more
concentrated, with the majority of plants being located in and around Iowa. This
is logical considering hog production tends to be located in the mid section of the
country, in close proximity to sources of feed energy and protein. This increased
concentration of packing facilities has created a fierce competition in the
marketplace. From 1985 to 1990, with the addition of new slaughter capacity, the
region went from a surplus of 4 million hogs a year in 1980, to a 400,000 head
surplus in 1990, and while in 1991 the region was in a deficit position of 2 million
hogs.

The core states in the Western Corn Belt, including Minnesota, Wisconsin,
North and South Dakota and Iowa were in a deficit position in 1990, and had to
bring in 4 million hogs to slaughter in 1991" (Sparks Companies Inc., 1993). A
majority of the hogs needed came from the Southern Plains states. This was due
to the plant closures in that area. Transportation of live hogs thus plays a larger
role in making marketing decisions. "Hog production will continue to consolidate
around packers. As there is greater co-operation between packers and producers,
there's likely to be greater regionalization of production. We may see some pretty

large hog-producing states falling behind. Ohio, Georgia, and Missouri are

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There is however, an exception to this movement of hogs from production
areas to packer locations. Hog producing operations are starting to expand in
fringe areas of present major production regions. Machan states:

"Hog production is growing in states like North Carolina, Texas, Colorado
and Oklahoma for various reasons, including the cost of land and the social
and political environments. If that continues and the producers in those
areas find it too costly to transport hogs to Iowa for processing, the state's
position as a net importer of hogs could be affected. The net result is likely
to be packing plants built near the new hog production centers. IBP is
more than likely to follow hog production" (Ref. 1992).
In the same article, printed in the National Hog Farmer, John Lawrence an
extension livestock economist, offered an alternate analysis. He stated that "the
new fringe operations could delay the dip in hog numbers (predicted for late
1993) and give Midwestern packers even more sources for hogs, as well as long
term forward contracts", (Ref. 1992).

"Historically, packers and pork producers have been adversaries, with some
producers distrusting packers" (Brumm, Bitney, 1992). This however, will have to
change, as swine farms and packers continue to decrease in numbers, and the
swine industry itself evolves. "Farmers must deliver a uniform product (pigs) that

meets or exceeds the packer's specifications so that he can deliver the products

consumers want" (Brumm, Bitney, 1992).

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1.3.4 Barriers to Entry and Exit for Packer/Processors

The barriers to entry and exit for packer/processors are similar to those of the
producer in that they are rising as well. "The basic trend over time has been for
kill-and-cut firms to get larger and more specialized, shifting from the older
multistorey, multispecies plants to single story, high volume plants; the largest
plants can slaughter more than 3 million head per year" (Hayenga et a1. 1985).
This specialization and investment of capital increases the fixed sunk costs, and
raises the barrier to exit. The reason being that the alternative value of the plants
may be lower than the value for which it was intended.

Market share is another barrier to entry which is extremely significant. As
stated by Abeles-Allison:

"A larger barrier to entry may be posed by the need to take market share
from another packer as the total level of production has remained stagnant.
This would explain the prevalence of mergers and acquisitions to enter the
market. New or expanded plants owned by conglomerates may be cross-
subsidized initially. This can enable them to capture market share by
offering more favorable prices which eventually forces the older
competition out of business. The threat by conglomerate owners of being
willing and able to cross-subsidize in the face of competition may deter
potential entrants into a region. It may also deter competitors from
entering into price wars. Though not an important factor at present
except, perhaps, in some areas in the southeast, if packers obtain captive
supplies by integration or contracting, potential competitors may be shut
out of the market due to inability to access adequate supplies" (Ref. 1992).

As stated by Hayenga et al.:

"Entry into the slaughter stage is becoming more difficult because (1)
economies of scale in slaughter plants now require large investments, and
(2) obtaining a corresponding market share for a large volume of fresh and
cured products requires much time and promotion" (Ref. 1985).

16

1.3.5 Product Differentiation

Pork products can be differentiated in a number of ways. Although pork
cannot be physically changed into another product, such as milk into cheese, it
can be altered enough that similar pork products can be distinguished from one
another. "Products can be differentiated in many ways including physical
characteristics of the raw products, processing, packaging and branding.
Differentiating products can help to distinguish distinct demand functions and
allow price discrimination by sellers to take place" (Abeles-Allison, 1992).
According to the Sparks Companies Inc.:

"The trends are in place for a national distributor of meat (i.e, Tyson) to
put branded fresh product on the retail shelf. The principal inhibitor to
growth in branded fresh product sales thus far has been hog quality
consistency (weight and leanness) and the lack of a dominant market
leader to push the fresh branded product.

The principal trend that could lead to more sales of branded product is
the interest large firms like Tyson, and Smithfield have taken in expanding
their pork business. If Tyson makes the commitment to the business that
they have in chicken they could become the market leader the industry
needs to put branded pork on the retail shelf as well as in the
hotel/restaurant industry trade.

Further processors of pork will continue to prosper as consumer
demographics extend the trend of highly processed and convenient to
prepare meals. In addition, this sector is poised to pursue international
markets, particularly in the Pacific Rim, Europe, Mexico and Canada" (Ref.
1993).

Brand franchises are achieving relative importance in the processed pork markets.
"Oscar Mayer has strong brand franchises in cold cuts and hot dogs nationally,

while Hormel has a strong ham brand franchise" (Hayenga et al. 1985).

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1.4 PURPOSE OF THE STUDY

The primary purpose of this study was to compare the six marketing options
found within the four predominant methods of marketing swine in Michigan. The
specific research objectives of the study are listed in Section 1.5. By comparing
these marketing methods and subsequent options, the participating swine
producers will have more information when choosing a marketing strategy. As
well, they will be able to identify the characteristics needed to utilize each
particular method. It is important to note that there is no ideal method or
subsequent option, as the needs of each particular participant differs. Similarities
and differences are presented, and it is the task of the reader to place a value or

rating upon each method or subsequent option according to their specific criteria.

1.5 RESEARCH OBJECTIVES

The specific research objectives of this study were:

1. To describe the characteristics of respondents using the six marketing options
found within the four predominant methods of marketing swine in Michigan.

2. To compare the net price received by the six marketing options found within
the four predominant methods of marketing swine in Michigan. For the
purpose of this study, the net price is defined as the difference between the
gross price, premiums included (i.e. the price before deductions) and the direct
marketing costs (commission, transportation fees, insurance, etc..).

3. To describe the respondent's perceptions pertaining to the four predominant

methods of marketing swine in Michigan.

17

1.4 PURPOSE OF THE STUDY

The primary purpose of this study was to compare the six marketing options
found within the four predominant methods of marketing swine in Michigan. The
specific research objectives of the study are listed in Section 1.5. By comparing
these marketing methods and subsequent options, the participating swine
producers will have more information when choosing a marketing strategy. As
well, they will be able to identify the characteristics needed to utilize each
particular method. It is important to note that there is no ideal method or
subsequent option, as the needs of each particular participant differs. Similarities
and differences are presented, and it is the task of the reader to place a value or

rating upon each method or subsequent option according to their specific criteria.

1.5 RESEARCH OBJECTIVES

The specific research objectives of this study were:

1. To describe the characteristics of respondents using the six marketing options
found within the four predominant methods of marketing swine in Michigan.

2. To compare the net price received by the six marketing options found within
the four predominant methods of marketing swine in Michigan. For the
purpose of this study, the net price is defined as the difference between the
gross price, premiums included (i.e. the price before deductions) and the direct
marketing costs (commission, transportation fees, insurance, etc..).

3. To describe the respondent's perceptions pertaining to the four predominant

methods of marketing swine in Michigan.

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. To determine the market price information sources of respondents using each

of the six marketing options found within the four predominant methods of

marketing swine in Michigan.

. To determine the top two sources of information used by respondents in

evaluating the four predominant methods of marketing swine in Michigan.

1.6 LIMITATIONS OF THE STUDY

This study had the following limitations:

1.

The majority of the farrow to finish and finishing producers participating in this
study were members of the Michigan Pork Producers Association (MPPA).
The MPPA membership is voluntary and its members market approximately

65% of all hogs sold in the state of Michigan.

. Due to the above limitation, no valid generalizations could be made to other

farrow to finish or finishing producers in Michigan who were not members.
However, marketing strategies for the remaining 35% of producers should

have been similar.

. Comparisons in the costs associated with each marketing option was difficult

as the figures were not readily available for some marketing methods. Also the
transactions that occurred between the second and third parties in some
methods were not examined. Therefore the full cost of using those particular

methods and subsequent options was not known.

. The number of respondents was low limiting the analysis that could be

completed.

19

1.7 ASSUMPTIONS

The assumptions underlying this study were as follows:

1. All respondents understood the questionnaire directions and truthfully
completed the questionnaire.

2. The questionnaire was completed by the first/major decision maker* of the
farm.

3. The respondents primarily used one of the four predominant marketing
methods, and were actively marketing hogs in 1993.

C“) For the purpose of this study the first/major decision maker is defined as the
person who is primarily responsible for the majority of management decisions

in the areas of finance, production and marketing.

1.8 IMPORTANCE OF THE STUDY

The importance of conducting this study was as follows:

1. The study described the characteristics required to utilize each marketing
method and subsequent option. This provides respondents with the
information needed to alter their management decisions to conform to those
particular characteristics.

2. The study identified the marketing option with the highest net return.
Utilizing this marketing option could potentially improve the profitability of
the respondent's farming operation.

3. The study allowed respondents to compare their perceptions of the four
predominant marketing methods with actual data. This should allow them to

be more informed when they evaluate and choose a marketing method and

19

1.7 ASSUMPTIONS

The assumptions underlying this study were as follows:

1.

All respondents understood the questionnaire directions and truthfully

completed the questionnaire.

. The questionnaire was completed by the first/major decision maker* of the

farm.

. The respondents primarily used one of the four predominant marketing

methods, and were actively marketing hogs in 1993.

(*) For the purpose of this study the first/major decision maker is defined as the

person who is primarily responsible for the majority of management decisions

in the areas of finance, production and marketing.

1.8 IMPORTANCE OF THE STUDY

The importance of conducting this study was as follows:

1.

The study described the characteristics required to utilize each marketing
method and subsequent option. This provides respondents with the
information needed to alter their management decisions to conform to those

particular characteristics.

. The study identified the marketing option with the highest net return.

Utilizing this marketing option could potentially improve the profitability of

the respondent's farming operation.

. The study allowed respondents to compare their perceptions of the four

predominant marketing methods with actual data. This should allow them to

be more informed when they evaluate and choose a marketing method and

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subsequent option.

4. The study provided information on marketing frequencies, pricing basis (live
weight or grade and yield), and carcass evaluations. This enables the
respondents to maximize their net price received by adjusting marketing
techniques and the actual product they are selling.

5. This study identified information sources pertaining to market prices, and the
four predominant marketing methods. These results are important to the
personnel responsible for such information, for each of the four marketing

methods.

1.9 HYPOTHESES
The following hypotheses was developed for this study:
1. Direct to packer marketing will have the highest net return since all

transactions costs take place between the packer and the producer.

1.10 DEFINITION OF TERMS

The following terms were used throughout this study:

Consolidate. To combine smaller units to create larger and more viable units.

521 egg-operative, A 521 co-operative is a tax exempt co-operative that is
owned by its farmer members. As such, the co—operative is required to account
for all transactions; and, at the end of each year, to allocate the surplus, in excess
of reserves equitably back to its owners. The law also states that a 521 co-
operative must pay out in cash at least 20% of surplus, in excess of reserves,

within nine months of the close of the books for each year.

21

Ce—eperative maketing, A method of marketing swine in which two or more
producers pool their hogs together in order to create larger loads that are more
attractive to the packer. Depending on size, this type of marketing system can
improve the producers' bargaining position with the packer regarding price.

Direct to packer marketing. A method of marketing swine whereby the
individual producer is responsible for the transportation of the live hogs to the
packer's facilities. A contract may be established between the producer and the
packer defining such items as; the quality and number of hog to be received by
the packer, and the price to be received by the producer.

Grade mid yield pricing. This method of pricing involves evaluation of hog
carcasses rather than live hogs (Hayenga et al. 1985).

Independent assembly of market hogs. A method of marketing hogs in which
one person or business assembles hogs into larger groups which are then sold to
the packer. In Michigan, brokers/truckers are the primary assemblers.

Integrep'on, An increased co-operation between firms and/or the combining of
firms or businesses engaged in the production of goods. This integration can be
within a single stage or involve a number stages in the production of goods.

Integration (vertical). Firms engaged in successive stages in the production of
goods (Concise Oxford Dictionary, Seventh Edition, 1982).

Live weight pricing. Live weight pricing refers to any pricing method in which
the price is negotiated and paid on the basis of the weight of the live hog at the
time of ownership transfer from the buyer to the seller (Hayenga et al. 1985).

Majer decision maker. The person who is primarily responsible for the

management decisions of the operation. This person would make management

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Qo-emrative mgketing, A method of marketing swine in which two or more
producers pool their hogs together in order to create larger loads that are more
attractive to the packer. Depending on size, this type of marketing system can
improve the producers' bargaining position with the packer regarding price.

Direet to packer marketing. A method of marketing swine whereby the
individual producer is responsible for the transportation of the live hogs to the
packer's facilities. A contract may be established between the producer and the
packer defining such items as; the quality and number of hog to be received by
the packer, and the price to be received by the producer.

Grade Ed yield prieing. This method of pricing involves evaluation of hog
carcasses rather than live hogs (Hayenga et al. 1985).

Independent assembly of market hogs. A method of marketing hogs in which
one person or business assembles hogs into larger groups which are then sold to
the packer. In Michigan, brokers/truckers are the primary assemblers.

Integratien, An increased co-operation between firms and/or the combining of
firms or businesses engaged in the production of goods. This integration can be
within a single stage or involve a number stages in the production of goods.

Integratiea (vertical). Firms engaged in successive stages in the production of
goods (Concise Oxford Dictionary, Seventh Edition, 1982).

Live weight pricing. Live weight pricing refers to any pricing method in which
the price is negotiated and paid on the basis of the weight of the live hog at the
time of ownership transfer from the buyer to the seller (Hayenga et al. 1985).

Major deeision maker. The person who is primarily responsible for the

management decisions of the operation. This person would make management

22

decisions regarding such aspects as marketing systems, finances and genetic
selection.

Market cenduct, Is the term applied to the behavior patterns that firms in an
industry exhibit in the market where they sell their product. It arises within the
environment of an industry's market structure (Caves, 1992).

Market performance. Is our normative appraisal of the social quality of the
allocation of resources that results from a market's conduct (Caves, 1992).

Market structure. Consists of the relatively stable features of the market
environment that influences the rivalry among the buyers and sellers operating
within it (Caves, 1992).

Market transaction costs. Market transaction costs are those costs associated
with the various elements of a transaction, including an appraisal of alternative
deals, the communication and transportation costs directly associated with
making the deal, transferring ownership, setting price and delivery, plus those
occasional negotiable costs when one or both parties complain about some
aspect of the transaction. Transaction costs are increased by uncertainties that
complicate the appraisal of alternatives: questions of prevailing prices, actual
quality of the commodity, likely cost of the delivery, and reliability of the
potential buyer or seller.

Packer buying stations. A method of marketing hogs in which a packer
Operates a yard to purchase and assemble loads of hogs to be taken to their
slaughter facilities.

Selected sort, This is a term used by the packer/processor Thorn Apple Valley
in obtaining the "type" of hog they desire. They have parameters which hogs

23

must meet or exceed otherwise they will be sorted and sent back to the producer.
The selected sort is made on a live weight, visual basis and not on a grade and
yield basis.

Subsector. A subsector is a set of enterprises, from farm to retail linked together
by various ownership and contractual ties, markets, rules, and transaction

arrangements involved in producing and marketing a commodity (Marion, 1986).

1.11 OVERVIEW

This study is organized using the following format. Chapter one introduces the
research problem, basic conditions, and elements of market structure affecting the
performance of the hog/pork subsector. This is followed by the purpose of the
study, research objectives, limitations of the study, assumptions, importance of the
study, hypotheses and definition of terms. Chapter two will contain the review of
literature pertinent to the study. Chapter three explains additional structural
factors and the conduct of the hog/pork subsector in the United States and as it
pertains to the State of Michigan. Chapter four explains the methodology used
in preparing and developing the survey instrument and obtaining participants.
Chapter five discloses the results of the study. Chapter six contains the summary,

findings, and conclusions/implications based on the results found in Chapter five.

CHAPTER H
REVIEW OF LITERATURE

2.1 INTRODUCTION

In comprising this review of literature it is important to note that the quantity
of empirical data, regarding producer-first handler markets, is very low. As stated
by Marion and Mueller:

"The majority of industrial organization studies in the food and fibre
system have focused on food processors and manufacturers, food retailers,
and to a limited extent farm input suppliers. Very few empirical efforts
have examined producer-first handler markets to access the extent, trends,
and effects of monopsonistic buying power; the competitive impact of
marketing co-operatives; and the effect of vertical linkages on market
behavior. Since most producer-first handler markets are local in nature,
cross-sectional analysis is possible where the necessary data can be
obtained. In some cases, data on the quantity/quality purchased and prices
paid by buyers may best be obtained directly from farmers. Given

sufficient resources, however, such research should be feasible" (Ref.
1983).

This chapter will be divided into three sections. The first section will review
literature pertaining to industrial organization. This will be followed by a review
of agricultural commodity subsector studies, and marketing studies within the

hog/pork subsector.

2.2 INDUSTRIAL ORGANIZATION
In defining industrial organization Marion and Mueller stated the following:

"Industrial Organization (10) has emerged as a field of study within
economics, in which the primary focus is organization and performance of
markets and industries. Although individual firms may be the unit of
observation in some IO studies, the emphasis in industrial organization is
mainly on understanding behavior of groups of firms that either act as
competitors (a selling or buying industry) or interact as suppliers and

24

25

customers. The basic IO paradigm holds that the structure (S) of a market
strongly influences the competitive conduct (C) of firms within the market, which
in turn strongly influences market performance (P)." (Ref. 1983).

The origins of industrial organization can be traced back to 1939, when Mason
first developed this systematic method of study. This was followed by a period
filled with studies and theoretical debate, and "by 1960 the field was rich in
concepts but short on empirical testing" (Marion, Mueller, 1983). Bain (1945)
was perhaps the most important person behind the downfall of the industry study
approach. His approach instead, was to use cross-sectional analyses. From these
he would choose one or more structural variables, found within a number of
studies, and correlate them with industry performance variables.

Agricultural economists were hesitant in applying this industrial organization
theory to agricultural markets to determine organization and performance. There
were however, two exceptions to this, A.C. Hoffman (1940) and William H.
Nicholls (1941, and 1951). Cross-sectional econometric studies were performed in
the 1960's in large numbers. The basic structure—conduct-performance paradigm
was verified, and relationships developed. This acceleration of 1.0. research was
stated by Marion and Mueller as follows:

"1.0. research by agricultural economists accelerated in the 1960's, much of
it stimulated by the National Commission on Food Marketing and a series
of seminars and workshops sponsored by NCR-20, a North Central
Regional Research Committee. Several members of NCR-20 were
instrumental in creating NC-117, which invited participation by researchers
throughout the nation. Organized in 1974, this project has undertaken

several studies of the organization, control, and performance of the U.S.
food system" (Ref. 1983).

26

2.3 AGRICULTURAL COMMODITY SUBSECI‘ OR STUDIES
Subsectors are defined by Marion in the following manner:

"An agricultural subsector is viewed as an interdependent array of
organizations, resources, laws and institutions involved in producing,
processing and distributing an agricultural commodity. A subsector
normally includes several industries (firms that are similar in functions
performed and products produced), such as the egg packing or food
retailing industries. The essential characteristics of subsector analysis is
focusing in on the total vertical complex as a system. In a real sense,
subsectors are small economic systems. The conceptual framework used in
the subsector studies posits that basic conditions plus subsector structure
strongly influence conduct in the subsector, which in turn has an
important effect on subsector performance" (Ref. 1986) .

As defined by Shaffer:
"The uniqueness of subsector studies is not in the methodology or
approach but in the scope and comprehensiveness of the research. The
area of research is simply defined to include both the vertical and
horizontal relationships in a significant part of the food and fibre section"
(Ref. 1973).

The adaptation of the 10 to subsector studies can be clearly seen in Fig. 1.1
(Chapter 1). The subsector adaptation allows for a more detailed study using the
10 framework. In subsector studies attention is particularly focused on vertical
co-ordination. One of the most difficult and critical areas of subsector analysis is
understanding vertical co-ordination. Mighell and Jones (1963) defined vertical
co-ordination as "all the ways of harmonizing the vertical stages of production
and marketing." "Vertical co-ordination includes the system of prices and other
mechanisms that direct the allocation of resources in a subsector" (Marion, 1986).
There are two types of co-ordination that are of significant importance.
Administrative co-ordination, which exists within the firm or as a result of

government authority, and exchange co-ordination which primarily involves

markets (although not always competitive ones). Competitive relationships

27

however should not be overlooked in this emphasis on co-ordination.
Co-ordination of agricultural production and marketing has been the object of
research attention for many years (Marion, 1986). The framework used by these
studies was provided by Mighell and Jones's 1963 study of vertical co—ordination
in agriculture. Goldberg (1968) introduced co-ordination in his systems approach
in the study of commodity production and marketing. The interest has shifted in
more recent years to pricing mechanisms and systems, and their subsequent
impact on prices, price reporting, and co-ordination (Hayenga 1979a; Hayenga
and Schrader 1980). Project (NC 117) research has shown theoretically and
empirically that methods of co-ordination and pricing affect the performance of
the commodity subsector involved (Marion, 1986). The performance attributes of
co-ordination systems and their associated pricing methods are summarized
briefly in Table 2.1 (Marion, 1986).
Direct ownership is a significant form of co-ordination within the subsector,
however there are others. As stated by Abeles-Allison:
"There are many other types of co-ordination between levels of a
subsector which do not involve direct ownership. They include, but are
not limited to, joint ventures, contracts and private treaty negotiations.
They involve autonomous parties at different levels of the subsector" (Ref.
1992).
According to Harris and Massey, there are four principal ways of achieving
vertical co-ordination. They are open-market competition, farmer co-operatives,
co-ordination within one firm and contract farming (Ref. 1968). Rhodes and
Grimes (1992) estimated that the contractor share of all U.S. produced market

hogs in 1991 was 15 to 16%, which was an increase of 4 percentage points over

the 11 to 12% of their last survey for 1988 production.

28

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29

2.3.1 Description of Subsector Studies
Subsector studies can be defined in the following manner:
1. Subsector studies are comprehensive.
2. Measure the dynamics of the subsector, including changes over time and the
forces of change.
They must be able to defend the subjective assessment.
Follow systems principles.

Subsector studies are a flexible tool.

9‘???“

Are a research approach in which decisions must be made regarding the most
effective way to use them in each particular situation.
Agricultural subsector studies are needed because of the different biological
aspects of agriculture. Biological factors such as gestation periods, maturation
periods, climatic conditions and seasonality make it difficult to analyze the
industry as a whole. By examining the vertical and horizontal relationships
within each individual subsector, a more comprehensive analysis is achieved.
According to Shaffer, "I would hope for a shift from the organizing concept of
static allocative efficiency to the concepts of dynamic systems and performance.
The changing relationships of technology, pref- erences and institutions, which
are often assumed as given in analysis of allocative efficiency should be explicitly
included in analysis of subsectors", (Ref. 1973).
The systems principles or orientation that subsector studies employ, are

described by Shaffer in this manner:
"Closely tied to my perception of subsector studies is what I would call a

systems orientation. By this I mean analysis of an economic activity in the
context of a broader system. Such analysis would take into account

30

feedback, sequences, and extemalities. It includes the idea of simulation in
the sense of projecting the flow of consequences from the dynamics of
ongoing processes or from potential modification in the subsector.
Orientation is toward understanding the interdependencies and the effects
which are not immediate or obvious. The systems models are valuable
tools of analysis, and behavioral systems models are especially valuable as
a framework for organizing research on a subsector", (Ref. 1973).

In other words the "systems orientation" emphasizes interdependence of related

activities and is concerned with the coordination of economic activities as a

system (Harrison et al. 1987).

The fact that subsectors studies can be adapted to fit the complexity of each
particular situation lends to its flexibility as a research tool. Thus the decisions
pertaining to the most effective way to employ them in each situation, must be
made very carefully. It is beneficial to do a detailed appraisal or assessment of the
subsector, before making decisions. This will better enable the researcher to
defend the subjective assessments that will be made. Many researchers who have
carried out both short and long term studies have found that rapid

reconnaissance (assessment) techniques, when used judiciously, can yield

valuable insights about subtle and dynamic factors in food systems (Holtzman,

1986).

2.3.2 Hog/Pork Subsector Studies
As part of the North Central Regional Research Project NC-117 (Studies of the
Organization and Control of the U.S. Food System), an analysis of the US Pork
Seetor; Qhaaging Struetare and Organization (Hayenga et al. 1985) was
completed. It is perhaps the only thorough analysis performed on the hog/pork

subsector. As stated by Hayenga et al., the study:

”I

‘ I

31

“1. Described the current organizational structure at each vertical stage
of the pork sector, extending from the breeding stock market to the
retail and food service markets, and determined the primary causes
for any evolutionary patterns observed.

2. Described the current pricing and co-ordination systems prevalent at
each stage of the vertical marketing system and the underlying
rationale for their use.

3. Evaluated the performance of the pork sector and public policy
options that improved sector performance. Elements of performance
that warranted particular attention were the short-, intermediate-, and
long-term dynamics of supply, demand, and price behavior in the pork
sector" (Ref. 1985).

The study used the pork subsector production and marketing system model
illustrated in Figure 2.1. It is possible for one firm to perform all the functions
shown in the model, however "the pork sector typically involves a series of firms
specializing in separate activities such as hog production and hog slaughtering,
which are linked by various marketing arrangements" (Hayenga et al. 1985). This
statement is representative of the firms that will be examined in this study, as well
as marketing links. Therefore, this model will be used to illustrate the marketing

arrangements which link farrow to finish hog producers and slaughter/processing

firms.

2.4 MARKETING STUDIES WITHIN THE HOG/PORK SUBSECTOR
The purpose of this study is not to analyze the entire hog/pork subsector, but
instead focuses on the marketing arrangements linking farrow to finish and
finishing producers with packer/processors. The following section will review
literature related to this particular area of subsector studies.
The trend toward larger farming operations discussed in chapter one has had a

significant impact on the method of selling market hogs. As hog enterprises

32

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33

increase in size, producers are more likely to market direct to the packer's plant
because they can ship in truckloads (whole lots (groups) of hogs), and because
they develop sufficient market knowledge to deal directly with packer/buyers
(Hayenga et al. 1985). Gonzalez, Rhodes and Grimes (1983) found a strong
relationship between outlet usage and the size of the production unit (See Table
2.2).

What is best, in terms of outlets, often varies between producers and may even
vary between loads marketed from one producer. In a study done in Iowa, it was
found that nearly three-fourths of all hog producers surveyed used only one or
two outlets over time, although the larger producers did tend to try more outlets
than smaller producers (Raikes et a1. 1972). The same survey indicated a
willingness by larger producers to compare market outlets. This was achieved by
splitting loads of hogs and selling them through different outlets on the same day,
and also by obtaining more price bids. This may be slightly misleading as 75% of
the largest producers only used one or two market outlets, and 42% only
obtained one price bid before selling their groups of hogs.

The majority of the hogs being priced on a carcass basis are sold either direct to
the packer or through packer buying stations. There has been a gradual increase
in the proportion of slaughter hogs sold on a grade and yield basis since the early
1960's when 2-3% were sold in this fashion (Raikes et al. 1972). As packers
continue to shift to carcass merit pricing this number will only continue to climb.

There have been indications from several studies that younger and larger
farmers sell a significantly higher proportion of their hogs based upon the grade

and yield method of pricing. Rhodes et al. found that producers selling 5000 or

34

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35

more hogs per year, price approximately 25% of their hogs on a carcass basis
compared with the 11% national average (Ref. 1981).

A 1979 Purdue University survey reported that 45% of the farmers producing
more than 500 hogs per year sold some of them on a carcass grade and weight
basis, while the corresponding figure was only 17% for smaller producers (Meyer
and Lang, 1980). Another finding of this study was that producers were more
likely to price their hogs on a carcass basis if they sold more hogs direct and if

they relied on livestock as a major source of revenue.

2.5 SUMMARY

In this chapter, literature pertinent to this study, was reviewed. The chapter
consisted of the following sections; industrial organization, agricultural
commodity subsector studies, and marketing studies within the hog/pork
subsector. The origins and premises behind industrial organization, and subsector
studies were examined. As well, a description of the characteristics of subsector
studies were listed and described. It was apparent in the review of marketing
studies within the hog/pork sector, that empirical data is somewhat scarce.
Chapter three describes the structure/conduct of the hog/pork subsector and the

role of the four marketing methods.

CHAPTER III
STRUCTURE/CONDUCT OF THE HOG/PORK SUB SECTOR AND
THE ROLE OF THE FOUR MARKETING METHODS
3.1 INTRODUCTION

A synopsis of the U.S., and subsequently Michigan, marketing environment
was prepared by McEwan and McLeod. The following was stated:

"Marketing hogs in the United States is a free market system with each
producer selling to whichever packer or buying station they choose.
Individual producers and packers negotiate a price for that producer's
hogs. The negotiated price received by producers depends on many
factors such as the number of packers within a marketing range, supply
and demand of pork at that particular time and the individual producer's
hog quality history. The quality of hogs sold by a producer is measured by
percent lean, health, genetics or breed and sort (weight range of hogs
shipped in a group). Marketing either live weight or carcass weight can
also influence the price a producer receives. The average live weight of a
U.S. hog in 1992 was 249 lbs. The dressing percentage for US hogs is
73.5% (does not include head, leaf lard, and kidney) leaving a carcass
weight of 183 lbs. The percent lean for U.S. hogs is 49 to 50%", (Ref.
1993).

In this chapter the structure and conduct of the hog/pork subsector will be
examined. The above synopsis gives a explanation of the marketing environment
for hogs in the United States. This’will be explained in greater detail in the
following sections: price discovery, vertical co-ordination, marketing information

sources and marketing methods.

3.2 PRICE DISCOVERY
According to a comprehensive industry study by the Sparks Companies Inc.,
price discovery is accomplished in the subsequent manner:

"At the production level, producers have several alternatives for
marketing hogs and their price is based on three main approaches.

36

"o

'\

37

Producers sell directly through packers, to dealers or through contractual
supply agreements with packers.

Throughout the 1950's and 1960's the vast majority of hogs were sold
through the terminal and auction markets. There were many sellers and
buyers and these market points served as an assembly point for buyers.
During this period most producers were too small to be able to produce a
full load of hogs and they only periodically marketed hogs.

As the packing industry moved out of the industrialized areas and into
the hog production regions, the terminal markets proved less valuable to
packers and gradually the terminal markets declined as a source of hogs.
In 1989, only 11 percent of the hogs sold went through the terminal and
auction markets. In recent months the terminal market receipts have
amounted to under 5 percent of the daily slaughter rate.

Brokers and livestock dealers have historically been another source of
hogs for packers. These buyers are a significant force in the procurement
of cull-sows, particularly for heavy weight sows used in whole hog (sow)
sausage manufacturing. They perform a collection and assembly function
for a largely fragmented market. Most producers seldom have sufficient
sows to market to fill a trailer load, nor do they regularly market sows.

Brokers do not account for a significant portion of the barrow and gilt
trade.

Today, all major packers have their own hog buyers, and many have
their own buying stations, which have replaced the auction markets as
assembly points. Well over 70% of the hogs marketed each day are sold
directly to packers either through plant delivered, or through the buying
stations. This control over the supply has enabled packers to better
manage the quality of the hogs they are buying, and have influenced the
direction that the various merit based buying systems have taken.

The Chicago Mercantile Exchange (CME) has a viable and active live
hog futures contract and options on live hog futures. This contract is
actively used as a hedging vehicle, but it is not a viable source of hogs for
packers. It has a limited function as an economic delivery vehicle for
producers" (Ref. 1993).

The concentration of packers in the Iowa area has also had an effect on state
prices relative to U.S. prices. Chris Hurt, a Purdue University extension
economist, made the following observation:

"Western Iowa is the centre of hog slaughter. You can see prices decline
as you move away from that area, but it is a fairly recent phenomenon.
That would not have been the case even in 1985", (Ref. 1992).

This price difference will have a major effect on the total revenue generated by

swine farmers in Michigan. Which'in turn, may hinder their competitiveness with

38

producers in other states.

Interior Iowa/Southern Minnesota prices are the best indicators of regional
price levels for hogs that are marketed in the Western Corn Belt (Sparks
Companies Inc., 1992). The Interior Indiana or Ohio based prices are used for
hogs sold east of the Mississippi river. The differences in price received, between
the eastern and western markets, is at times a significant margin. These can be

seen on the following chart completed by the Sparks Company Inc..

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 3.1 Weighted Average Hog Prices Received by Farmers Dollars, per
Hundred Weight Live
1975 1980 1985 ____ 1990 1991
W. Corn Belt 46.4 38.0 44.1 54.6 50.1
E. Corn Belt 46.4 38.4 44.1 53.1 48.0
Virginias/Carolinas 46.0 37.8 44.5 52.0 47.5
Southern States 44.3 36.7 44.3 51.5 46.6
Southern Plains 45.7 37.1 43.5 51.6 46.8
Pacific NW/West 45.6 38.7 43.7 53.2 49.7
North East 45.1 38.8 43.7 50.2 45.8
United States 45.7 39.2 44.1 52.5 48.2
(Ref. 1993)

 

 

In the last several years the increased price and elevated premiums in the
Western Corn Belt have outstripped the rest of the country. The Eastern Corn
Belt has done the exact opposite, dropping below the national average in 1991.

These price levels can be directly attributed to the movement of slaughter

39

capacity relative to the available supply of pork. The closing of several major
facilities in the East have been met with additional slaughter capacity in the West.
Oscar Mayer is an example of one processor who has exited the hog slaughtering
business.
"Hormel had significant labor difficulties in the '805, prompting it to sell one
plant to Excel and transfer operation of the slaughtering facilities in its
Austin, MN, plant to a custom slaughtering firm. Wilson Foods, once the
largest hog slaughterer, downsized dramatically as a consequence of
significant financial difficulties and bankruptcy a few years after being
spun off from LTV, and again after being acquired by Doskocil, when
Doskocil went through bankruptcy proceedings" (Hayenga, Kimle, 1992).
On the other hand the five largest slaughtering companies (according to Hayenga
and Kimle, 1992) IBP Inc., Monfort (Con Agra Inc.), John Morrell (Chiquita
Brands), Excel Corp. (Cargill), and Smithfield Foods Inc., ranked one through five

consecutively, have expanded through renovations, new plants and acquisitions.

3.3 VERTICAL CO-ORDINATION AND INTEGRATION

As the marketplace has becomes more complex, co-ordination and integration
within the industry has proliferated. Producers and packers are increasingly
striving in a co-operative manner to upgrade the product being produced. "Co-
ordinated systems will be developed that link the production of pork together
with the service, processing and marketing segment of the industry" (Fort, 1992).
Two methods of accomplishing this goal are the marketing of swine on the
grade/yield system, and producers and packers operating on contractual terms.

There is a marked increase in the number of hogs being sold on the grade/yield
basis for a specific packer/processor. According to a survey financed by the

University of Missouri, Department of Economics, between 15 and 16 percent of

40

all hogs sold in the U.S. during 1991 were delivered under contract. In a similar
study conducted by Rhodes in 1988, 11-12 percent of all hogs sold in the U.S.
that year were sold on contractual terms. This rise in grade/yield basis marketing
may be the reason for the expanding contract production, which in certain areas,
could result in a further movement towards integration.

The main advantage of co-ordination and integration for the packers, is that
they have a distinct influence over the quality of their hog supply when they
purchase on a contractual basis. Due to the absence of an effective quality
oriented national grading system, individual packers have established grade/yield
programs on their own. This lack of a quality oriented national grading system
has not slowed the adoption of purchasing hogs on the merit of carcass
attributes. It is now quite widespread in the industry, being used by nearly all of
the major packers. McEwan and McCleod state:

"Each U.S. packer has its own unique grading grid aimed at rewarding
and penalizing producers depending on whether the desired target hog is
marketed, along with their own data collection methodology. Some
packers use a backfat measure-ment ment rather than percent lean. For
instance a hog sold to Hormel with 0.81 to 1.00 inch of backfat and a
carcass weight of 174 to 180 pounds would receive a premium of 5
percent above their base price.

Each U.S. packer has its own calculation for percent lean with some
using rulers and some using probes. Each U.S. plant using a probe has its
own equation attached to it which means that percent lean from one plant
cannot be directly transferred to another. Thus, two plants using the same
probe may not give the same percent lean for a producer's hogs. In most
plants the probe just differentiates superior hog carcasses from inferior
carcasses. The grid at each U.S. plant is constantly changing to keep pace
with the changing target hog and average hog quality" (Ref. 1993).

Integration by the packers/processors excludes the individual producer
altogether by producing the needed hogs themselves. Integration downward by

packers/processors into production has taken place, as Barkema and Cook

41

indicate:

"Alternatively, some pork processors now rely on vertical integration to
raise their own hogs. The key distinction between vertical integration and
contracting is that even more control over the production process is
transferred to the processor. Under vertical integration, hog farmers
relinquish their independence and simply become employees of the
integrated pork firm" (Ref. 1993).

This movement toward integration is attractive to the packers, however producers
face some concerns. Barkema and Cook report the following:

"The shift toward a more integrated industry works hand-in-hand with the
trend toward fewer and larger hog farms, much to the consternation of
smaller producers. Processors who contract with farmers would prefer to
manage a few contracts with large producers rather than many contracts
with small producers. Integrated pork processing firms are likely to
produce enough hogs to account for a significant portion of their
processing capacity. Thus, the trend toward a more concentrated,
integrated pork industry has raised concerns that the nation's smaller,
independent pork producers could lose access to markets and eventually
be crowded out of the industry by much larger, integrated producers" (Ref.
1993).

An example of this increase in integrators can be found in Pork, which stated
the following:

"Nov. 3 (1993) marked the ground breaking for the first stage of a pork-
production venture that is planned to involve 120,000 sows in 5 years.
The venture will eventually have its own feed mill, slaughtering and fresh-
pork processing plant. The project is being developed specifically to serve
California and Asian markets.

Joining forces to form Circle Four Farms are three of the nation's largest
pork producers, all headquartered in North Carolina -- Carroll's Foods,
Murphy Farms, Prestage Farms -- and the Virginia-North Carolina pork
packer and marketer, Smithfield Foods.

Buildings are being erected on three farms near Milford, Utah, which is
in the southwest part of the state. They will be stocked in January (1994)
with National Pig Development company gilts. Initially, the Circle Four
Farms will finish hogs in its own facilities and will enlist contract growers
and finishers later.

Until the mill is completed late this year, feed will be purchased from
independent sources. Construction of the slaughter-processing plant will
follow" (Staff, 1994).

42

In recent years the U.S. hog industry has made a great effort to upgrade the
genetic base of its breeding stock (Sparks Companies Inc., 1992). This has
occurred partially because of the rise in grade/yield buying programs, however
the major backers of this trend have been the vertical integrators. There has been
enormous pressure on the industry to produce the lean, and well muscled product
that the consumers are demanding. This demand for a consistently high quality
product has fuelled the grade/yield movement, and has also introduced a quality
rating for commodity pork products. As stated by Forrest:

"In a consumer driven industry that depends upon a loosely linked
production chain typical of the pork and beef industries in the U.S., it is
sometimes difficult to communicate consumer demands accurately
throughout the chain. The most effective incentive to adjust production
systems to meet consumer desires comes in the form of monetary
differentials. The main obstacle to establishing realistic price differentials is
the lack of rapid and accurate techniques for determining carcass values at
the critical transfer point between livestock producers and packers. Price
differentials based upon carcass value could have a major impact on
genetic selection and management programs" (Ref. 1992).

The packers are offering producers quality based incentives in the form of
premiums, for the carcasses that perform well on the grade/yield system. "The
extent of grade yield pricing has clouded price discovery as it has been
traditionally known in the market. The top 25% of the producers selling on a
grade and yield basis can receive a price $4.50 to $5.50 per head above the base
price" (Sparks Company Inc., 1992).

The integration within the slaughter/packer industry has had a tendency to
move forward and up the marketing chain rather than down and back into

production. An example of this would be Thorn Apple Valley, which is a

relatively small packer located in Detroit, Michigan. This company would

L4.
, .D

43

purchase live hogs, carry out the slaughter and packing function, and create
specialty branded products for sale into the retail trade. Products created by such
companies usually have regional rather than national recognition and allegiances.
The larger brand name companies, such as Con Agra, would carry out similar
functions but would be entirely focused on a national scale.
According to the Federal Reserve Bank of Kansas City's Economic Review, the
reasons for the push toward integration are as follows:
"Three closely related factors appear to be driving the pork industry
toward a more compact market structure. First, consumers have become
more discriminating, requiring the pork industry to design its product more
carefully. Second, new technology is overhauling the pork industry,
giving it the means to tailor its products for the consumer's more
discriminating palate. Third, a more compact market structure has
improved the flow of information between consumers and producers,
ensuring that pork products are designed with consumers tastes in mind"
(Barkema, Cook, second quarter, 1993).
The consolidation and integration taking place within the industry is not yet
finished. The same study predicts that pork production will become more
concentrated still, into fewer and larger hog farms with closer ties to pork
processors. This drive for consolidation and integration within the U.S. industry
will be driven by two economic factors: "1) a drive to cut costs by capturing

economies of scale, and 2) efforts to control the industry's increasing risks"

(Barkema, Cook, 1993).

3.4 MARKET PRICING INFORMATION SOURCES
Hog producers in the U.S. have available a plethora of market information and

advice, which is generally provided at relatively low costs. Five of the primary

sources of this information are as follows:

44

Satellite receivers - this type of access is becoming increasingly utilized

(Sparks Companies Inc., 1992). It provides for the subscriber cash market

quotations, future markets, market commentary, weather reports, and an

abundance of additional market and production related information.

United States Department of Agriculture - the USDA provides producers with

market information, primarily in the form of current and historical cash

markets and fundamental data.

Land Grant Universities - there are several which publish marketing

information and advice, usually in the form of a monthly report.

Market advisory services - numerous services exist which are readily

available to producers, and which can provide market analysis, data, and

specific marketing advise.

Futures brokerage services - the majority of these services provide a form of

market forecast or outlook, for the benefit of livestock hedging customers.

An appraisal of industry wide market information was given by Hayenga et al.:

"The flow of market information in this sector is generally good.
Unfortunately, even good current and historical market information is not
enough to prevent the hog cycle. However, the information flow does
facilitate arbitrage and reduce the chances of successful short-term market
manipulation in a widely dispersed, decentralized marketing system. The
existence of both public and large private news services in the sectors is
unusual in agriculture. The presence of both services provides checks and

balances on each, but whether the extra cost involved in having both
services is justified is an open issue (Henderson et al. 1982)" (Ref. 1985).

45

3.5 MARKETING METHODS
3.5.1 Co-operative Marketing
"Pork integration is creeping through the U.S. hog industry, and many hog

producers are scrambling to form collective marketing organizations to protect
their livelihood" (Marbery, 1993). Marketing organizations or co-operatives are
increasing in numbers in the U.S to enable producers to increase the marketability
of their product, and hence improve on the price they receive for that product.
By working co-operatively producers can increase the size and improve the
uniformity of their shipments.

"The marketing co-operative is a viable alternative for many hog farmers.

Not only will it help secure better hog prices, it may lend some discipline to

farm management skills. Co-ops are only options for those producers

willing to change. Some farmers think group marketing is nothing more

than filling a bigger truck, but it is not nearly that simple. Satisfying

demand for "volume" is only a small part of a modern marketing program.

The key to success depends on uniform carcass quality, not just similar live

weight" (Lawrence, 1994).

"Producer groups will be able to overcome their individual weaknesses.

The most obvious deficiency is high uniform pork quality. Uniform, lean

carcasses are vital for producers seeking assured markets. Just pooling is

not enough." (DiPietre, 1994).
Having and using a uniform genetic package strengthens a marketing co-
operative. "Long term success hinges on the group's willingness to standardize
genetics at a high level" (Marbery, 1994).

Corn Belt producers with an abundant supply of markets have also started

experimenting with marketing organizations (Marbery, 1994). They are however,
encountering difficulties in establishing a steady market for their product. The

reason for this is that they are located in a hog-dense area, and packers have

ready access to nearby alternate hog supplies. According to Marbery:

46

"Marketing specialists believe the marketing co-ops will prove transitional
in nature. Privately, some believe packers would prefer to integrate than to
deal with several large co-operative producer groups. Some major packers
quietly are preparing to capture at least 50 percent of their supply, either
through company-production or joint ventu owned res" (Pork Producer,
Winter 1993,'94).

In a 1994 interview with Mike Bigelow, Vice-President of Livestock
Marketing, Michigan Livestock Exchange (MLE), he stated the fact that "they
are the largest livestock co-operative in the nation." Established in 1922 and
head quartered in East Lansing, Michigan, the MLE has expanded and now
owns and operates markets in Indiana, Ohio, and Kentucky. Presently, they are
handling 3 million hogs per year. The MLE has in excess of 30,000 members
throughout Michigan, Indiana, Kentucky and Ohio (cattle and hog producers). It
has an equity base of approximately $8 million and pays yearly patronage
dividends to each of its members.

The MLE has 13 yards including 7 auctions in Michigan, 24 yards in Indiana
including 1 auction, and 1 auction in Kentucky. The MLE employs 250 people
on a full time basis (350 including part time help), who are governed by a 9
producer member board. "Membership is automatic when marketing livestock.
At its Annual Meeting elected delegates elect members who will sit on the
Michigan Livestock Exchange Board of Directors" (MLE Brochure, 1994).

In 1994 the Indiana Livestock Exchange (ILE) became a co-operative
subsidiary of the Michigan Livestock Exchange. The history of the Indiana
Livestock Exchange is stated in the ILE brochure, as follows:

"As in many states across the country, livestock producers of Indiana
formed a 521 co-operative, organized to solve their marketing problems.

Over the years, the co-operative grew and successfully represented the
producers of Indiana.

47

The late 60's were not kind to this co-operative; and, even with
assistance from marketing co-operatives around the country, the co-
operative ran into financial trouble. Indiana Farm Bureau was appointed
by the court to manage and control the co-operative in 1970 and
continued under that order through 1987.

In 1987 Indiana Farm Bureau purchased the co-operative in order to
continue to provide a service to the producers of Indiana. In that
transaction, the co-operative legally lost its exemption and became a
corporation owned by Indiana Farm Bureau.

In 1990 Indiana Farm Bureau contracted with Michigan Livestock
Exchange (a Michigan based farmer owned 521 co-operative) to assist in
the rebuilding of the marketing company with the goal of eventually
making it strong enough to again become a 521 tax exempt co-operative.

By the close of the year in 1993, the goal had been achieved and ILE
emerged as an exempt, full service livestock marketing 521 co-operative on
January 3, 1994."

The Michigan Livestock Exchange markets hogs by either arranging direct
marketed sales between packers and producers, or by assembling hogs from
producers and then marketing them to the packers. The direct marketings are
increasing and it is estimated that up to 50% of all hogs are now sold by this
method (Bigelow, 1994). The MLE feels that it is a price discovery mechanism for
producers and a source of supply management for packers (Bigelow, 1994). It
serves a quality control function, delivering carcass information from the packer
to the producer. The MLE deals with upward of fourteen packers, however, 40%
of their hogs are sold to Thorn Apple Valley in Detroit, on a selected sort system.
The other 60% of the hogs dealt through the MLE are primarily sold to out of
state packers, with a few being delivered to smaller slaughtering facilities/abattoirs
in Michigan.

Aside from hog marketing, the MLE offers a wide range of other services to its
members. Cattle also comprise a significant portion of the MLE's business. A

Livestock Feeding Program placed over $62 million worth of cattle on members'

48

farms in 1993. There is also an Animal Health Division which had $1.2 million
worth of product sales in 1993. Producers also have the option of borrowing
money as well as keeping funds in interest bearing accounts, this system is known
as "Payment Plus". These are just a few examples of the options MLE offers its

members.

3.5.2 Direct to Packer Marketing

Depending on the size of the operation the producer does have the option of
marketing directly to the packer. "It doesn't take that large a group to market
direct bimonthly or weekly. A lot of producers market 100-150 head a week.
Direct marketings can be a tremendous asset to any producer, if he can get
enough hogs to make a regular load that a packer can expect, 210-212 top hogs a
load" (Adams, 1992). According to John Lawrence, an Iowa State University
extension livestock economist:

"More hogs are being direct-delivered to packers these days. Packers can
pay slightly higher cash prices for those hogs, since they don't have to pay
the overhead and transportation costs associated with buying stations",
(Ref. 1992).

Their are a number of packers which purchase Michigan hogs, some of which
include: Iowa Beef Packers (IBP), Iowa; Indiana Packing Company (IPC),
Indiana; Hatfields, Pennsylvania; Thorn Apple Valley, Michigan; Sarah Lee Corp.,
Ohio; FDL Foods Inc. and Excel Corp., Illinois; and Rouths, Ohio. "Michigan
hogs are sold not only in Michigan but to packers in Ohio, Pennsylvania, Virginia,

Iowa, Indiana, and Illinois" (Schwab, Hogberg, 1992).

The reasoning behind the growth of this method of marketing tends to lie in the

49

areas of increased flexibility and bargaining power. Access to packers has
become more convenient and prices are easily obtained. Direct savings are
possible since there is no commission or yardage to pay and payment is also
usually faster. "Even though posted prices were generally below the top prices at
the terminals, many farmers felt that the net returns were better (Hayenga et al.
1985).

In Canada, a country with close ties to the U.S., and a major import/export
partner, packers are calling for hog bookings. This would require producers to
call in their shipping intentions a day or more ahead of the actual shipping date,
rather than arriving at the yard unannounced.

"Producers hate to hear it, but we should have full booking. It would even
out the hog flow and cost the producers less in shrinkage, perhaps
boosting dressing percentage from 80.5 to 81 percent. Producers seem to
think that it will be the packers taking control" (Dent, 1994).
The benefit to producers in this system is that packers can sell in advance,
streamlining the flow from yard to plant. Hogs could be killed the same day they
are shipped.

Presently, hogs are booked in varying numbers in Ontario, Manitoba, and
Quebec. "Up to 95 percent of Quebec's 87,000-hog-a-week run is booked a day
in advance. Farmers must call in sales before 9 am. for next-day slaughter. There
are no assembly yards. Quebec has 11 plants and 5,000 producers" (Allard, 1994).
"All hogs in the UK. are contracted. In the Netherlands and Denmark, same day
kill is possible because farmers are so close to plants. In France, farmers book

once a week" (Rollings, 1994).

"Booking requires a change of attitude. Everyone wants to assemble hogs
first thing in the morning. If all are assembled first thing in the morning,

'7

50

they can't all be killed that day" (Rollings, 1994).

3.5.3 Independent Assembly Marketing

The third method of marketing hogs is through independent assembly. In this
method an independent agent such as a broker/trucker or privately owned
auction would assemble and sell hogs. There are two ways in which to use this
method. The first and most common way is for the producer to retain ownership
of the hogs and pay the independent assembler a commission for selling his/her
hogs. The second way of using this market-ing method is to actually sell the hogs
to the independent assembler, and then they in turn would sell the hogs to a
packer. This is the least common way of selling hogs using this marketing
method.

In this method of marketing, the idea is to assemble hogs into uniform group
sizes that are more attractive to packers and hence bring a higher return. This
would then justify the commission that the independent assembler would charge
for selling the market hogs. Until IBP bought out Heinhold in 1993, it was a
significant independent assembler in the industry. As stated by Hayenga et al.:

"Not all local markets are packer-owned buying stations. Independent
merchant/ dealers often own and operate these facilities, buy hogs, and
then resell them to various packers at the best bids. Heinhold is likely the
largest hog dealer with numerous buying stations. A number of co-
operatives such as Interstate Producers operate in much the same fashion.
In addition, auctions serve as organized markets on one or more days per
week in some areas. Auction commissions averaged $1.40 per head in
1980 at some 1800 auctions handling hogs (Henderson and Baldwin
1981). Auctions are usually more important in areas producing fewer hogs

than in the Corn Belt" (Ref. 1985).

Due to the changing industry, the Heinhold buy out by IBP, and increase in direct

51

to packer selling, industry leaders consider this method to be the least common of

the four methods of selling hogs in Michigan.

3.5.4 Packer Buying Stations

In Michigan the largest packer assembler is IBP (Schwab, 1993), doing so in
order to guarantee themselves enough quality hogs to keep packing plants
running efficiently. IBP has approximately 120 country assembly yards, these
being scattered throughout the states they deal in. "The yards handle about 500
hogs/day or 2000 per week" (McEwan, 1992). Yards are restricted in the number
of hogs they can purchase, as IBP has a policy of same day slaughtering. This
means that they will only purchase as many hogs as they can slaughter in that
day, holdovers are rare. This is a significant fact for Michigan producers simply
because of the distance to IBP's slaughter facilities in Iowa. Hogs must be
purchased and loaded on trucks bound for Iowa by shortly after noon each day.

This situation could be improved in the near future as IBP purchased a former
Wilson's Food plant in Logansport, Indiana. This plant is approximately 70 miles
from the southern Michigan border. The plant is currently being renovated and
IBP claims that it will be operational sometime in 1995. When in full operation
the plant will employ 1700 people, who will handle a daily, two shift kill of 15,000
to 17,000 head. This should allow IBP to become more aggressive in bidding for
Michigan hogs. Industry personnel feel that this may increase the price by as
much as $3 per hog in some areas.

IBP became the largest packer assembler in Michigan by purchasing the

Heinhold yards Sept. 1, 1993. Heinhold was an independent broker

52

headquartered in Kouts, Indiana. They assembled hogs and sold them to various
packers, primarily on a live weight basis. Heinhold operated assembly yards in
seven states, with Illinois, Indiana, and Ohio having the largest proportion of the
yards. IBP purchased 86 yards from Heinhold, of which five are located in
Michigan. In contrast to Heinhold, IBP is a packer slaughtering the hogs they
purchase, these hogs being primarily purchased on a grade and yield basis.

Hogs are brought to an assembly station where they are purchased by an IBP
buyer. Information is processed on all hogs slaughtered and producers are paid
on the average quality of their previous three loads. Initially, the buyer must use
his discretion in bidding for the hogs. Buyers tend to also travel the countryside
in order to increase business, distribute information and develop relationships

with their clients.

53

3.6 SUMMARY

In this chapter the structure/conduct of the hog/pork subsector and the role of
the four marketing methods was described. The chapter consisted of the
following sections; price discovery, vertical co-ordination, marketing information
systems and marketing methods. The pricing of hogs was examined, as well as
the price differentiation between regions due to the concentration of packers.
Increased co-ordination and integration within the hog/pork subsector was also
discussed which included the packers need to influence and subsequently
improve the quality of the product they are purchasing. It is apparent that there
are a number of sources of marketing information available to the producer, the
main question is who is utilizing it and to what extent. Chapter four pertains to

the methodology used in this study.

CHAPTER TV
METHODOLOGY

4.1 POPULATION AND SAMPLE

The population under study consisted of swine farrow to finish producers, and
producers who finished hogs. Participating producers were located in the state of
Michigan, and were primarily members of the Michigan Pork Producers
Association (MPPA). There were 121 producers in total who participated. The
breakdown by primary marketing option used was as follows: Direct to Packer
(N=12); Packer Buying Stations (N=6); Michigan Livestock Exchange-Yard
(N=73); Michigan Livestock Exchange-Direct to Packer (N=12); Independent
Assembly-Trucker/Broker (N=10); and Independent Assembly-Auction (N=8). A
list of pork producers was compiled in co-operation with the MPPA using the
existing producer mailing (membership) lists. An additional short list was added
by industry personnel and producers.

The list, compiled at the MPPA, consisted of all swine producers in their
membership. Since MPPA membership is voluntary, there was a significant
portion of the producers in Michigan not readily attainable. According to MPPA
personnel, their producers market approximately 65% of the total number of hogs
sold in the state. The producers selling the remaining 35% of the hogs in
Michigan were more difficult to contact without a central agency, and hence very
few of them were involved in the survey. In total, 1024 names were compiled,
986 for the initial mailout and 38 in a secondary mailout. The secondary mailout

being producers outside of MPPA membership, recommended as the survey was

54

55

being conducted. The eligibility of participation depended solely upon the farm's
predominant marketing method, and the availability of pertinent records. The
incentive to participate was a full report of the findings identifying the marketing

option having the highest net return in 1993.

4.2 THE INSTRUMENT

The instrument itself was nine pages in length. It was primarily comprised of
rating scales, rankings, and questions which were closed response, dichotomous,
or multiple choice in nature. The participant in most cases, also had the option to
state additional information. The instrument was developed using the Ontario
Data Analysis Project-Swine (ODAP-S) questionnaire as a model, and with the
assistance of industry personnel, producers and extension personnel in the state
of Michigan.

The survey instrument consisted of seven sections; demographic information,
general farm statistics, marketing options, marketing information, marketing
revenues and costs, marketing characteristics, and production practices. The
demographic information section identified characteristics specifically related to
the producer, while the general farm characteristics section identified
characteristics specifically related to the farm operation. The marketing options
section identified the marketing option(s) used by the farm operation, and the
factors influencing the choice of that particular option. It also identified any
packer(s) they may have dealt with in 1993, and the reasons for choosing
that/those packer(s). The marketing information section identified the producer's

source(s) of information regarding market price and the four predominant

56

marketing methods. The producer's perceptions of the four predominant
marketing methods, as a result of the information received were also examined.
The marketing revenue and cost section identified the net price received by, and
direct marketing costs associated with, each marketing option. The marketing
characteristics section identified some of the characteristics associated with each
of the six marketing options found within the four predominant marketing
methods. The production practices section identified some of the progressive
production practices that occurred on the swine operations under study in 1993.
The instrument itself, as well as related correspondence, is presented in Appendix
A. The instrument was checked for validity and reliability by the committee

members, county extension personnel, industry leaders, and producers.

4.3 DATA COLLECTION AND ANALYSIS

Once the 986 potential participants were identified through the Michigan Pork
Producers Association (MPPA) they were mailed a questionnaire. One week after
that mailing, they were mailed a follow up letter. This letter thanked them for
completing the survey and was a gentle reminder if they had not yet done so.
The intent of this letter was to improve the response rate. It is important to note
that the author was at no time in possession of the mailing list, instead all mailings
were conducted by MPPA personnel from their facilities, with the author's
assistance. Completed questionnaires were returned using prepaid envelopes.
Participating producers were then identified by the MPPA, using the code placed
on each questionnaire, and the matching producer list which they had retained.

The participants were then phoned and thanked for their participation, and

57

questioned further on survey responses that were unclear. An attempt was made
to contact every producer and a significant amount of additional information was
obtained. The questionnaire was confidential and this was stressed on the cover
of the instrument.

During the telephone follow ups, a small number of additional producers were
identified for participation. This was the reason for the additional short list of 38
producers who comprised the second mailing. The overall response rate was
11.8%. This is considered a low response rate and was due in part to a number of
explainable reasons. First, the MPPA mailing list was in need of updating, people
who move, leave farming etc.., were still on the mailing list. Second, the mailing
list contained weaner producers, and retired producers who remain in contact
with the industry. There were upward of 100 questionnaires returned to the
author for these two reasons.

Responses were initially entered in a Lotus 1-2-3 spreadsheet (version 2.4), on
a personal computer. This was partly due to ease of entering, but more
importantly for a quality control function (to eliminate errors). Producers were
grouped according to their primary marketing option, primary being the option by
which they marketed the majority of their hogs. Information on hogs sold using
options other than their primary one was rare and was omitted in the analysis.
The initial analysis was completed using this program and included; averages,
minimums, maximums, counts and standard deviations. The individual data on
each method was analyzed using these measures. Comparisons were also based
on these measures. This program was particularly useful in examining the

characteristics of each marketing option.

58

Responses were then analyzed using the Statistical Package for the Social
Sciences (SPSS/PC-I-lversion 4.0), on a personal computer. The level of
significance was set at a priori of .05, .01, or .001 depending upon the analysis
being completed. The Oneway Analysis of Variance and associated Post-Hoe
Tukey test was used to determine if any significant differences existed between
group means. Correlation analysis and the associated Pearson correlation
coefficient was used to quantify the linear relationships between selected
continuous variables. Crosstabulation analysis and the associated Pearson Chi-
square test of independence was used to measure the relationship between
selected categorical variables. Linear regression analysis was used to determine

relationships between selected continuous and categorical variables.

4.4 SUMMARY
In this chapter the methodology used in preparing and developing the survey
instrument and obtaining participants was described. The chapter consisted of
the following sections; population and sample, the instrument, and data collection
and analysis. It was apparent in the chapter that there were certain difficulties in
obtaining participants in general, and particularly from the entire population of

Michigan swine producers. The next chapter discloses the results of the study.

CHAPTER V
RESULTS

5.1 INTRODUCTION

In this section the results of the study will be disclosed. The data analysis was
based on Likert-type, ranking, closed response, dichotomous, and multiple choice
questions. The respondents were comprised of farrow to finish and finishing
producers having membership in the Michigan Pork Producers Association
(MPPA). Membership with the MPPA is voluntary and its members market
approximately sixty-five percent of all hogs sold in the state of Michigan. The
survey contained 239 questions divided into seven sections: General Farm
Characteristics; Marketing Options; Marketing Revenues and Costs; Marketing
Characteristics; Marketing Information; Production Characteristics; and
Demographic Characteristics. The data analysis was based on the responses to
the 239 questions and seven sections.

The responses to the questions were analyzed using descriptive statistics which
included; frequencies, percentages, means, counts, minimums, maximums, and
standard deviations. Descriptive statistics identify the central tendency of the
responses. Combined group means were used to compare the results of
respondents using each primary marketing option. The Oneway Analysis of
Variance and associated Post-Hoc Tukey test was used to determine if any
significant differences existed between group means. Correlation analysis and
the associated Pearson correlation coefficient was used to quantify any linear

relationships existing between selected continuous variables. Linear Regression

59

60

and Crosstabulation analysis were used to determine relationships between
selected variables.

The results of the study are presented in five sections. The first section
contains the characteristics of the six marketing options. The second section
contains a comparison of the net returns of the six marketing options. The third
section contains the producer's perceptions regarding selected criteria. The
fourth section contains the producer's market price information sources. The fifth
section contains the top two sources of information used in evaluating the four

different marketing methods.

5.2 CHARACTERISTICS OF THE MARKETING METHODS
When the 121 respondents were separated according to their primary
marketing option the number of respondents primarily using each option were as
follows: Direct to Packer option (N=12); Packer Buying Station option (N=6);
Michigan Livestock Exchange-Yard option (N=73); Michigan Livestock
Exchange-Direct to Packer option (N=12); Independent Assembly-
Trucker/Broker option (N=10); and Independent Assembly-Auction option
(N=8).
This section is divided into five areas. The first area identifies general farm
characteristics. The second area identifies demographic characteristics. The third
area contains financial characteristics. The fourth area contains production

characteristics. The fifth area pertains to marketing characteristics.

61

5.2.1 General Farm Characteristics

This area was divided into four subsections which identified some of the
general farm characteristics associated with the six primary marketing options.
The four subsections were: (1) the importance of the swine enterprise; (2) the farm
business type; (3) involvement in production alliances or producer networks; and
(4) tillable acreage. The results are listed in Tables 5.1 - 5.3.
1. Importance of the Swine Enterprise

Producers were asked to rank the importance of the swine enterprise lst
through 4th, based on the gross incomes of all farm enterprises. The respondent's
rankings of the swine enterprise are listed by primary marketing option used in
Table 5.1. The majority of the respondents within each marketing option ranked
the swine enterprise first; except for the respondents using the "Independent
Assembly-Auction" option, whose majority ranked it second.
2. Farm Business Type

Producers were asked to identify their farms's business type. The farm business

types are listed by primary marketing option used in Table 5.2. The majority of
the respondents using the "Packer Buying Station", "Michigan Livestock
Exchange-Yard", "Independent Assembly-Auction", and "Michigan Livestock
Exchange-Direct" options were either sole proprietorships or spousal
partnerships. Respondents using the "Direct to Packer", and "Independent
Assembly-Trucker/Broker" options had a greater percentage of family
partnerships, family corporations, non-family corporations, and unrelated

partnerships than the other four marketing options.

62

 

 

   

 

 

 

 

Table 5.1 A Ranking of the Swine Enterprise By Primary Marketing Option
Swine Grp l Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
Enterprise (N=12) (N=6) (N=72) (N=10) (N=8) (N=12)
Rankin
% Ranked 1st 83.3% 66.6% 52% 70% 37.5% 66.7%
% Ranked 2nd 16.7% 33.4% 38% 20% 50% 33.3%
% Ranked 3rd 10% . 12.5%
% Ranked 4th 10%

 

 

 

 

 

 

 

 

(N) Denotes the number of respondents.
Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exchange - Yard Option.

(.) Denotes no responses.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Independent Assembly - Auction Option.
Grp 6 = Mich. Liv. Exchange - Direct Option.

 

 

 

 

 

 

 

 

 

Table 5.2 Farm Business Types Associated With Each Primary Marketing
Option

Business Type Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=12) (N=6) (N=72) (N=10) (N=8) (N=12)

Sole propr. 25% 33% 33% 30% 75% 58.3%

Spousal partn. 25% 50% 26% 20% 12.5% 25%

Family partn. 33% 17% 33% 30% 12.5% 8.35%

Family corp. 8.5% 2.7% 10% 8.35%

Non family 8.5% 4.1%

corp.

Other * 1.2% 10%

 

 

 

 

 

 

 

 

 

 

(.) Denotes no responses.
Partn. - Partnership.
Corp. - Corporation.

(N) Denotes the number of respondents.
(*) Individual (unrelated) partnerships.
Propr. - Proprietorship.

See Table 5.1 for Grp definitions.

 

63

3. Involvement in Production Alliances or Producer Networks

Producers were asked to identify their involvement in production alliances or
producer networks. Involvement in production alliances and producer networks
was relatively low and generally ranged from 8.3% to 30%. One marketing
option had 50% involvement, however it should be noted that this option had
only six respondents.
4. Tillable Acreage

Producers were asked to identify the tillable acreage cropped in 1993. The
median tillable acreage cropped is listed by primary marketing option used in
Table 5.3. Due to the large variation in tillable acreage, the median value was
used rather than the mean, this was a more appropriate indicator of acreage
cropped within each option. The median tillable acreage ranged from 182.5 to

775 acres. All but two of the options had respondents who cropped 0 acreage.

Table 5.3 The Tillable Acreage Cropped by Primary Marketing Option

 

 

Grp 3 Grp 4
(N=72) (N=10)

182.5 310 430 250
I Range in acreage II 0-2600 0-1200 0-3300 200-2200 5-506 0-1500 I

    

    

 

 

 

 

 

 

 

(N) Denotes the number of respondents.

(*) The median is the "middle value", at which there are as many respondents higher as there are lower.
Grp 1 = Direct to Packer Option. Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 2 = Packer Buying Station Option. Grp 5 = Independent Assembly - Auction Option.
Grp 3 = Mich. Liv. Excflge - Yard Option. Grp 6 = Mich. Liv. Exchgge - Direct Option.

 

64

5.2.2. Demographic Characteristics

This area was divided into two subsections which identified some of the
demographic characteristics associated with the respondents using the six
primary marketing options. The responses were based on the first/major decision
maker. For the purpose of this study the first/major decision maker was defined as
the person who was primarily responsible for the majority of management
decisions in the areas of finance, production and marketing. The two subsections
were: (1) the age distributions of the respondents; and (2) the education
distributions of the respondents. The results are listed in Tables 5.4 and 5.5.
1. Age Distributions of Respondents

Producers were asked to identify their age using four categories. The
categories were: (a) 20-35; (b) 36-45; (c) 46-55; and (d) 56 & Over. The age
categories are listed by primary marketing option used in Table 5.4. The majority
of respondents using the "Direct to Packer" and "Michigan Livestock Exchange-
Direct to Packer" options were between the ages of 20-45. The majority of
respondents using the "Packer Buying Station", "Michigan Livestock Exchange-
Yar ", and the "Independent Assembly-Auction" options were over the age of
45. Of the respondents using the "Independent Assembly-Trucker/Broker"

option, half were between the ages of 20-45 and half were over 45 years of age.

65

Table 5.4 The Age Distribution Within Each Primary Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Category Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=12) (N=6) (N =71) (N=10) (N=8) (N =12)
20- 25 33.3% 16.7% 11.3% 10% 37.5% 8.3%
36 - 45 58.3% 16.7% 29.6% 30% 12.5% 50%
46 - 55 8.4% 16.7% 40.8% 30% 12.5% 25%
55 & Over . 49.9% 18.3% 30% 37.5% 16.7%
(N) Denotes the number of respondents. (.) Denotes no responses.
Grp 1 = Direct to Packer Option. Grp 4 = Ind. Assembly — Trucker/Broker Option.
Grp 2 = Packer Buying Station Option. Grp 5 = Independent Assembly - Auction Option.
Grp 3 = Mich. Liv. Exchange - Yard Option. Grp 6 = Mich. Liv. Exchflge - Direct Option.
2. Formal Education Completed

Producers were asked to identify the level of formal education they had
completed. The formal education level of respondents is listed by primary
marketing option used in Table 5.5. The majority of respondents using the
"Direct to Packer" option had completed post secondary school education. The
majority of the respondents using the "Michigan Livestock Exchange-Yard",
"Independent Assembly-Trucker/Broker", "Independent Assembly-Auction",
"Michigan Livestock Exchange-Direct to Packer" options had completed a
secondary school education or less. Of the respondents using the "Packer
Buying Station" option, half had completed post secondary school education and

half had completed secondary school education or less.

66

 

 

 

 

  

 

 

 

 

 

Table 5.5 The Education Level of Respondents by Primary Marketing Option
Education Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=12) (N=6) (N=71) (N=10) (N=8) (N=12)
Less than High | 2.85% 8.3%
School
High School 1% 25% 50% 50.7% 70% 62.5% 50%
College (2yrs) 41.7% 16.7% 23.9% 20% 12.5% 33.4%
University (4yrs) II 33.3% 19.7% 10% 25% 8.3%
Graduate School II 33.3% 2.85%

 

 

 

 

 

 

 

 

(N) Denotes the number of respondents.

Grp 1 = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exchange - Yard Option.

(.) Denotes no response.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Independent Assembly — Auction Option.
Grp 6 = Mich. Liv. Exchange - Direct Option.

 

5.2.3 Financial Characteristics
This area was divided into two subsections which identified some of the
financial characteristics associated with the six primary marketing options. The
two subsections were: (1) the value of producer's farm assets; and (2) the net farm
income distributions of the producers. The results are listed in Tables 5 .6 and 5.7.
1. Value of Farm Assets
Producers were asked to identify the fair market value of their farming assets in
1993 using three categories. The categories were: (a) Less Than $500,000; (b)
$500,000 - $1,000,000; and (0) Over $1,000,000. The value of farm assets are
listed by primary marketing option used in Table 5.6. For the purpose of this
study, category 1 represented small farms, category 2 represented medium sized
farms, and category 3 represented large farms. The majority of respondents using

the "Direct to Packer", "Michigan Livestock Exchange-Direct", and "Independent

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67

Assembly-Trucker/Broker" options had farm assets valued at over $500,000,
indicating a tendency for medium and larger sized farms. The majority of
respondents using the "Packer Buying Station", "Michigan Livestock Exchange-
Yar ", and the "Independent Assembly-Auction" options had farm assets valued
at less than $500,000, indicating a tendency for smaller farms.

There tends to be an association between the variable "primary marketing
option" and the variable "value of farm assets". This indicates that there is an
association between the "primary marketing option" used and the value of farm

assets possessed by respondents using that option.

Table 5.6 Value of Farm Assets by Primary Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Category Grp l Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=12) (N=5) (N=71) (N=9) (N=8) (N=12)
Less Than 16.6% 100% 64.8% 33.3% 75% 33.3%
$500,000
$500,000 - 41.7% . 23.9% 33.3% 25% 16.7%
$1,000,000
Over $1,000,000 41.7% . 11.3% 33.3% . 50%
(N) Denotes the number of respondents. (.) Denotes no responses.
Grp l = Direct to Packer Option. Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 2 = Packer Buying Station Option. Grp 5 = Independent Assembly - Auction Option.

Grp 3 = Mich. Liv. Exchange - Yard Option. Grp 6 = Mich. Liv. Exchange - Direct Option.

2. Net Farm Incomes

68

Producers were asked to identify their net farm income in 1993 using five

categories. The categories were: (a) Less than $25,000; (b) $25,000 - $50,000; (c)
$50,000 - $75,000; (d) $75,000 - $100,000; and (e) Over $100,000. The net farm

incomes are listed by primary marketing option used in Table 5.7. A larger

percentage of the respondents using the "Packer Buying Station", "Michigan

Livestock Exchange-Yard", and the "Independent Assembly-Auction" options

had net farm incomes less than $25,000 compared to the respondents primarily

using the other three marketing options. The "Independent Assembly-Auction"

option was the only marketing option having no respondents with a net farm

income in excess of $100,000.

 

 

 

 

 

 

 

Table 5.7 Net Farm Income Distributions by Primary Marketing Option
Net Farm Income Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=12) (N=5) __ (N=70) (N=9) (N=8) (N=12)
Less Than 8.3% 60% 1 47.1% 22.2% 75% 8.3%
$25,000
$25,000-$50,000 50% 25.7% 33.3% 12.5% 25%
$50,000-$75,000 20% 4.3% 1 1.1% 8.3%
$75,000 - 5.7% 11.1% 12.5% 16.7%
$100,000
Over $100,000 41.7% 20% 17.2% 22.3% 41.7%

 

 

 

 

 

 

 

 

(N) Denotes the number of respondents.

Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exchange - Yard Option.

(.) Denotes no response.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Independent Assembly - Auction Option.
Grp 6 = Mich. Liv. Exchange - Direct Option.

 

 

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69

5.2.4 Production Characteristics

This area was divided into three subsections which identified some of the
production characteristics associated with the six primary marketing options. The
three subsections were: (1) the sow herd sizes of farrow to finish producers; (2)
the sources of replacement stock for farrow to finish producers; and (3)
production practices. The results are listed in Tables 5.8 - 5.10.
l. Sow Herd Sizes

Farrow to finish producers were asked to identify their average sow herd size
in 1993. The median sow herd size is listed by primary marketing option used in
Table 5.8. Due to the large variation in sow herd size, the median value was used
rather than the mean, this was a more appropriate indicator of the sow herd size
within each option. The median sow herd sizes of respondents using the six
marketing options ranged from 55 to 352 sows. The largest farrow to finish
respondent (2000 sows) and smallest farrow to finish respondent (3 sows) both
used the "Michigan Livestock Exchange-Yard" option.
2. Sources of Replacement Stock

Farrow to finish producers were asked to identify their source of replacement
stock in 1993. The replacement stock sources are listed by primary marketing
option used in Table 5.9. The majority of all farrow to finish respondents
purchased their replacement boars from independent F1/purebred suppliers or
corporate suppliers (eg. PIC, Dekalb), and replaced gilts from their own herds.
This would imply that the rate of genetic improvement is much slower than if gilts

were also obtained from outside their own herds.

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T1 KN Dz.\ rln\ Pl. \ F. ._\l|lDHlet .Pl.) 1 rl‘ \x.
.u . I- l ,
lJ WC .1;

70

Table 5.8 Sow Herd Sizes of Farrow to Finish Respondents by Primary
Marketing Option

 

 

Sow Herd Sizes Grp l Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=6) (N=4L_ (N=9)

Median * size 352 55 60 125 50 280
Range in size 120-1600 28-120 3-2000 65-380 20-110 100-650

 

 

 

 

 

 

 

 

 

 

 

 

(N) Denotes the number of respondents.
(*) The median is the "middle value", at which there are as many respondents higher as there are lower.

Grp l = Direct to Packer Option. Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 2 = Packer Buying Station Option. Grp 5 = Independent Assembly - Auction Option.
Grp 3 = Mich. Liv. Exchange - Yard Option. Grp 6 = Mich. Liv. Exchange - Direct Option.

 

Table 5.9 Sources of Replacement Stock for Farrow to Finish Respondents by
Primary Marketing Option

 

 

   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Replacement Stock Grp 1 Grp 2
Sources (N=9) (N=6)
BOARS *
Purebred/F1 prod. 58.3% 76.7% 59.1% 66.7% 50% 22.2%
Corporate Suppliers 25% . 26.4% 33.3% 40% 66.7%
Commercial Prod. . . 7.25%
Own Herd 16.7% 23.3% 7.25% . 10% 11.1%
GILTS *
Purebred IF 1 Prod. 10% 29% 8.5% 10% 23%
Corporate Suppliers 12.2% . 9.7% 20.8% 6.8% 44.4%
Commercial Prod. . . 0.6% 12.5%
Own Herd 77.8% 71% 79.2% 56.7% 70.2% 55.6%

 

 

 

(*) Percentages represent frequencies of use, Groups should total 100% each for boars and gilts.
(N) Denotes the number of respondents. (.) Denotes no responses.
See Table 5.8 for Grp definitions. Prod. - Producers.

71

3. Production Practices

Producers were asked to identify their use of selected production practices in
1993. The percentage of respondents using the selected production practices are
listed by primary marketing option used in Table 5.10. Less than 20% of all
respondents weighed hogs prior to sale. Split-sex feeding was more common
within the "Direct to Packer" and "Michigan Livestock Exchange-Direct to
Packer" options. Artificial insemination was used by 50% of the farrow to finish
respondents using the "Direct to Packer" option. The number of respondents
relying on packers to co-ordinate their feeding programs was negligible. The
majority of respondents using the "Direct to Packer" marketing option operate
barns on an all in/all out basis, as do 50% of the respondents using the "Michigan
Livestock Exchange-Direct to Packer" option. Three site production is used by
50% of the farrow to finish respondents using the "Direct to Packer", and "Packer
Buying Station" options. These results indicate that respondents marketing
"Direct to the Packer" are the most progressive.

There tends to be an association between the variable "primary marketing
option" and the variables "split-sex feeding for market hogs" and "barns being
operated on an all in/all out basis". This indicates that there was an association
between the "primary marketing option" used and the percentages of producers

who used these production practices.

72

 

 

 

 

 

 

 

Table 5.10 Usage of Selected Production Practices by Primary Marketing Option
Production Grp l Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
Practices (N=12) (N=6) (N=63) (N=10) (N=7) (N=11)

Hogs weighed 16.7% 16.7% 29.2% 20% 12.5% 16.7%
prior to sale.
Split-sex feeding 66.7% 13.9% 20% 66.7%
of hogs.
Use of artificial 50% 16.7% 9.7% 20% 0% 16.7%
insemination. (N=10) (N=55) (N=6) (N=4) (N=9)
Packer co- 2.8%
ordination of
feeding program.
Manage barns on 58.3% 16.7% 16.7% 30% 12.5% 50%
an all in/all out
basis.
Separate locations 50% 50% 27.8% 10% 12.5% 25%
of farrowing, (N=10) (N=55) (N=6) (N=4) (N=9)
weaner, or '

‘ finishing barns.

 

 

 

 

 

 

 

(N) Denotes the number of respondents.

Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exchange - Yard Option.

(.) Denotes no response.
* The percentage exceeds 100 due to multiple responses, the percentage represents frequency of use.
* Unless otherwise indicated the (N) for the Groups are listed at the top of the table.
Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Independent Assembly - Auction Option.
Grp 6 = Mich. Liv. Exchange - Direct Option.

 

72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5.10 Usage of Selected Production Practices by Primary Marketing Option
Production Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
Practices (N=12) (N =6) (N=63) (N=10) (N=7) (N=11)

Hogs weighed 16.7% 16.7% 29.2% 20% 12.5% 16.7%

prior to sale.

Split-sex feeding 66.7% 13.9% 20% 66.7%

of hogs.

Use of artificial 50% 16.7% 9.7% 20% 0% 16.7%

insemination. (N=10) (N=55) (N=6) (N =4) (N=9)

Packer co- 2.8%

ordination of

feeding program.

Manage barns on 58.3% 16.7% 16.7% 30% 12.5% 50%

an all in/all out

basis.

Separate locations 50% 50% 27.8% 10% 12.5% 25%

of farrowing, (N=10) (N =55) (N=6) (N=4) (N=9)

weaner, or '

finishing barns.

 

(N) Denotes the number of respondents.

Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exchange - Yard Option.

(.) Denotes no response.
* The percentage exceeds 100 due to multiple responses, the percentage represents frequency of use.
* Unless otherwise indicated the (N) for the Groups are listed at the top of the table.
Grp 1 = Direct to Packer Option.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Independent Assembly - Auction Option.
Grp 6 = Mich. Liv. Exchange - Direct Option.

 

 

73

5.2.5 Marketing Characteristics

This area was divided into twelve subsections which identified some of the
marketing characteristics associated with the six marketing options. The areas
were: (1) the percentage of hogs sold through the primary & other options, and
the number of methods used in the last five years; (2) the relative ranking of
marketing factors used in determining the marketing option chosen; (3) the
number of hogs sold in 1993; (4) the average live weights and basis of payment
(live weight vs. grade and yield); (5) the premiums discounts and costs associated
with each marketing option; (6) characteristics associated with hogs sold on a live
weight and grade & yield basis; (7) the percentage of hogs purchased by various
packers; (8) the scoring of the importance of selected factors in determining the
packer chosen; (9) the frequency of hog marketings; (10) the percentage of hogs
sold using various price risk management options; (11) the distance to the nearest
marketing method location; and (12) the relative ranking of selected factors
affecting price. The results are listed in Tables 5.11-5.23.
1. Marketing Options Used by Respondents

Producers were asked to identify the percentage of their hogs which were sold
through the primary & other marketing options, as well as the number of
marketing options used in the last five years. The percentage of hogs sold
through the primary & other marketing options, and the number of options used
in the last five years are listed by primary marketing option used in Table 5.11.
The average percentage of hogs sold through the primary marketing options
ranged from 84.6% to 97.5%. This indicated that respondents tend to

concentrate their marketings in the option of choice. However, it was not

74

Table 5.11 The Percentage of Hogs Sold Through Each Marketing Option Via
Various Outlets, and the Number of Options Primarily Used in the
Last Five Years

 

Hogs Sold By Each Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 * Grp 6
Group Via:

 

 

 

Direct to the Packer 0.7% . 1.3%
Packer Buying 0.6% 1.5 %
Stations

 

Mich. Liv. Exchange 96% 2% 2.8%

- Yards

 

 

    
    

 

 

   

 

 

Ind. Assembly - 96.5%

Trucker/Broker

Ind. Assembly - Yard 2.7% . 94.1% 2.5%
Mich. Liv. Exchange 97.5%

- Wt ———J===
Options used in the 2.6 2.0 1.4 2.4 1.5 1.5

  

 

 

 

 

 

 

 

lastSyrs

 

Percentage of hogs sold to various outlets for each option represents the average of all producers using that
option.

(*) Grp 5 - 1.8% of the hogs were sold privately (eg. freezer trade).

(.) Denotes no responses.

Grp 1 = Direct to Packer Option. Grp 4 = Ind. Assembly - Trucker/Broker Option.

Grp 2 = Packer Buying Stations Option. Grp 5 = Ind. Assembly - Auction Option.

Grp 3 = Mich. Liv. Exch. - Yard Option. Grp 6 = Mich. Liv. Exch. - Direct Option.

75

uncommon for respondents to use one or more other options in addition to the
primary one. Respondents using the "Direct to Packer", and "Independent
Assembly-Trucker/Broker" options have utilized more marketing options in the
last five years than respondents using the remaining four options.
2. The Ranking of Factors Used in Determining the Option Chosen
Producers were asked to rank selected factors used in determining the type of
marketing option chosen. The Likert-type question used a five point scale with 1
representing most important and 5 representing least important. The ranking of
the importance of selected factors in determining the type of marketing method
chosen is listed, using the combined means of all marketing options, in Table 5.12.
The results from individual primary marketing options is listed in Appendix B. It
would appear that respondents ranked the "price received" as the most important
factor in determining the type of marketing option chosen. This was followed by;
ease of use, quality of hog required by the buyer, costs, and the location of the
buyer. It would appear that respondents ranked the sex of the hog (gilt vs.
barrow) as the least important factor in determining the type of marketing option
chosen. The high standard deviations indicate that the consistency of the
ranking for each factor was low, thus reducing the reliability of the scores given.
There tends to be an association between the variable "primary marketing
option" and the variables "quality of hog required by the purchaser", "payment
basis", and "personal marketing skills". This indicates that there was a relationship
between the "primary marketing option" used and the scores received by the

three variables.

75

uncommon for respondents to use one or more other options in addition to the
primary one. Respondents using the "Direct to Packer", and "Independent
Assembly-Trucker/Broker" options have utilized more marketing options in the
last five years than respondents using the remaining four options.
2. The Ranking of Factors Used in Determining the Option Chosen
Producers were asked to rank selected factors used in determining the type of
marketing option chosen. The Likert-type question used a five point scale with 1
representing most important and 5 representing least important. The ranking of
the importance of selected factors in determining the type of marketing method
chosen is listed, using the combined means of all marketing options, in Table 5.12.
The results from individual primary marketing options is listed in Appendix B. It
would appear that respondents ranked the "price received" as the most important
factor in determining the type of marketing option chosen. This was followed by;
ease of use, quality of hog required by the buyer, costs, and the location of the
buyer. It would appear that respondents ranked the sex of the hog (gilt vs.
barrow) as the least important factor in determining the type of marketing option
chosen. The high standard deviations indicate that the consistency of the
ranking for each factor was low, thus reducing the reliability of the scores given.
There tends to be an association between the variable "primary marketing
option" and the variables "quality of hog required by the purchaser", "payment
basis", and "personal marketing skills". This indicates that there was a relationship
between the "primary marketing option" used and the scores received by the

three variables.

76

Table 5.12 The Relative Ranking of Marketing Factors Used in Determining
the Option Chosen, Combined Means of All Marketing Options

 

1 represents most important, 5 represents least important.

 

Variable Rank Mean m _N_
De_v

Price received 1 1.46 0.70 119
Ease of use (less effort involved) 2 2.14 1.12 118
Quality of hog required by the buyer 3 2.20 1.13 116
Costs (transp.,insurance, commission) 4 2.27 1.15 116
Location of the buyer 5 2.32 1.22 118
Premiums (yield, percent lean) 6 2.44 1.36 113
Weight of hogs marketed 7 2.47 1.20 116
Location of your farm 8 2.78 1.45 117
Kill sheets (carcass information) 9 2.78 1.49 112
Payment basis (live vs. dressed weight) 10 3.07 1.41 115
Personal marketing skills 11 3.14 1.18 112
Tradition 12 3 .59 1.46 1 16
Sex of hog marketed (gilt vs. barrow) 13 3.84 1.17 113
Other * -- --- --- 5

Variables ranked according to the mean value, (N) denotes the number of responses.
(*) Group marketing (2), feeder program (1), farm buyers (1).
3. Hogs Sold

Producers were asked to identify the number of hogs sold in 1993. The
average number of hogs sold is listed by the primary marketing option used in
Table 5.13. Due to the large variation in hog marketings, the median value was
used rather than the average, this was a more appropriate indicator of the number
of hogs sold using each option. The largest numbers of hogs were sold by
respondents using the "Direct to Packer", "Independent Assembly-
Trucker/Broker", and "Michigan Livestock Exchange-Direct to Packer" options
(median values ranging from 1815 to 3515.5). This is due in part to the

requirement of a semi-load of hogs per shipment. The other three marketing

77

options had median hogs sales per respondent ranging from 426 to 900. The
total number of respondents participating in the study represent approximately
2% of the pork producers in Michigan, however they sold more than 10% of the
state's total marketings. Of the 269,144 hogs captured by the study, 59% were
sold using the "Direct to Packer", "Independent Assembly-Trucker/Broker", and
"Michigan Livestock Exchange-Direct" options.
4. Live Weights and Basis for Payment

Producers were asked to identify the average live weight and basis of payment
for the hogs they sold in 1993. The average live weight of the hogs sold and
basis of payment is listed by primary marketing option used in Table 5.14. The
heaviest hogs were sold by the respondents using the "Packer Buying Station"
option. The majority of all hogs were sold on a live weight basis, the main
exception being the "Direct to Packer" option, where 66.7% of the hogs were
sold on a grade & yield basis.

There tends to be an association between the variable "primary marketing
option" and the variable "payment basis for the hogs marketed". This indicates
that there was a relationship between the "primary marketing option" used and
whether the majority of hogs were marketed on a live weight or grade & yield

basis.

nlJ CU ro—

Table 5.13 The Number of Hogs Sold by Primary Marketing Option

78

 

 

   
   

 

 

 

 

 

 

 

 

 

 

 

Hogs Sold Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
(N=6) (N=72) __ (N=10) (N=9) (N=12)
Median # 550 900 1815 426 3515.5
sold
Range in # 36 to 19 to 759 to 160 to 440 to
sold 1800 10,000 10,000 837 12,500
Total # sold 4221 102,208 29,459 3897 51,987

 

(N) Denotes the number of respondents.
(*) The median is the "middle value", at which there are as many respondents higher as there are lower.
Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.
Grp 3 = Mich. Liv. Exch. - Yard Option.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Ind. Assembly - Auction Option.
Grp 6 = Mich. Liv. Exch. - Direct Option.

Table 5.14 Live Weight, and Basis For Payment of Hogs Sold by Primary
Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

Variables G1 G-2 G3 G4 G5 G6
Average selling 239.57 244.96 239.27 240.48 237.65 236
weight (lbs)

Weight range (lbs) 225 to 235 to 217 to 235 to 225 to 220 to
257 257 252 249 250 252
Percent selling 66.7% 2. 8 % 15.4% 25%

e & yield (N=15) (N=70) (N=13) (N=12)
Percent selling live 33.3% 100% 97.2% 84.6% 100% 75%
weight (N=15) (N=6) (N=70) (N=13) (N=8) (N=12)

 

(N) Denotes the number of respondents for each category, multiple responses were possible if a respondent
used both payments methods.

(.) Denotes no responses. See Table 5.13 for Grp definitions.

 

 

79

5. Premiums, Discounts, and Costs

Producers were asked to identify their average premiums, discounts and costs.
The average premiums, discounts and costs on a per hundred weight (live) basis
are listed by primary marketing option used in Table 5.15. See Appendix C for
further detail pertaining to respondent numbers. The premiums received were
primarily quality related, less commonly they were received for distance to market
and time of delivery. The discounts were primarily due to quality and the need
for sorting. The premiums, discounts, and costs were difficult to compare as
respondents using some marketing options were unaware of specific amounts
being added to, or deleted from their payments. The costs for Group 3 were low,
as the majority of respondents were only aware of the transit insurance and swine
identification costs. More costs were known for Group 6 than Group 3, but again
not all were identified.
6. Comparison of Hogs Sold Live Weight and Grade & Yield

A comparison between hogs sold on a live weight basis and a grade & yield
basis is illustrated in Table 5.16. Comparisons were made on the average; live
weight, carcass weight, net price received, percent yield of the carcass, fat
measurement of the carcass, percent lean of the carcass, premiums, discounts, and
marketing costs. The hogs sold grade & yield basis were found to return an
average of $1.39 per hundred weight (live) more than those sold on a live weight

basis. However, this difference was not found to be statistically significant.

80

Table 5.15 Premiums, Discounts and Costs Per Hundred Weight (Live)

Associated With Each Primary Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variables G1 G2 G3 4 G5 G6
Average premium $2.43 NA $0.55 $2.44 $1.86
per cwt
Premium range $1.31 - NA $0.25 - $2.13 - $0.58 -
per cwt $3.98 $1.28 $2.89 $3.48
Average discounts $0.12 NA $0.23 $0.20
per cwt
Average costs (*) $1.18 NA $0.27 $1.24 $1.06 $0.57
per cwt
Cost (*) range per $0.49 - NA $0.04 - $0.65 - $0.41 — $0.07 -
cwt $1.63 $1.65 $1.75 $1.24 $1.45
Total Cost Per I $3.23 NA NA $3.37 $2.88 NA
Hog**

(N) In some cases the number of responses was low. Multiple responses were possible depending on

(.)
(cwt)

(*)

(**)
(NA)

Grp l = Direct to Packer Option.
Grp 2 = Packer Buying Station Option.
Grp 3 = Mich. Liv. Exch. - Yard Option.

the number of buyers within the primary marketing options (eg, more than one packer).

Denotes no responses.

Hundred Weight.

The costs do not include the checkoff rate of 0.0035 percent of the hog's value ($0.35 per $100 of
market value). They include all charges which are specific to each marketing option and pertain to
the delivery and exchange of hogs between the respondent and the second party. Cost such as
commissions, transit insurance, swine identification, and transportation to the packer where
known.

Total individual option cost/hog = average live weight x average costs + the checkoff amount.
Producers were not aware of the exact amount of these variables, as their payments showed only a
net value. Hence the charges incurred in the delivery and exchange of hogs between the respondent
and the second party, and between the second party and third party cannot be calculated.

Grp 4 = Ind. Assembly - Trucker/Broker Option.

Grp 5 = Ind. Assembly - Auction Option.

Grp 6 = Mich. Liv. Exch. - Direct Option.

 

 

81

Table 5.16 A Comparison of Characteristics Associated With the Live Weight
and Grade & Yield Basis of Selling Hogs

 

 

 

 

 

 

 

 

 

 

 

 

 

Variables Live Wei ht Grade & Yield
Average live weight (lbs) 236.49 239.32
Average carcass weight (lbs) NA 181.05
Average net price $46.37 $47.76
Average percent yield NA 76.24% **
Average fat measurement (in.) " NA 0.88 ***
Average percent lean NA 50.42% +
Average premiums (per cwt-live) $2.72 $2.16
Average discounts (per cwt-live) . $0.12
llAve)rage marketing costs* (per cwt- $0.72 $1.14
ve

 

 

(N) Denotes the number of respondents (producers could answer more than once if they marketed to
more than one packer through their primary marketing options).

(.) Denotes no responses.

(*) The average costs do not include the checkoff rate of 0.0035 percent of the hog's value ($0.35 per
$100 of market value). Not all costs were known by the respondents.

(**) Normally head off, leaf lard and kidneys are out.

(***) Measured at the 10th rib.

(+) Variety of probes and techniques.

(NA) Not Applicable.

 

82

7. Purchasers (Packers)

Producers were asked to identify all packers who buy their hogs (if known), as
well as the number purchased. The percentage of hogs purchased by various
packers for the respondents was then calculated and is listed by primary
marketing option in Table 5.17. Thorn Apple Valley was the primary purchaser
for the majority of respondents, except for those using the "Packer Buying
Station" option who sell exclusively to IBP. For 82.9% of the hogs sold by
respondents using the "Michigan Livestock Exchange-Yard" option, the buyers
identity was unknown.

There tends to be an association between the variable "primary marketing
option" and the variable "primary purchaser (packer)". This indicates that there
was a relationship between the "primary marketing option" used and the identity
of the packer who purchased those hogs.

8. Importance of Selected Factors in Determining the Packer Chosen

Producers were asked to score selected factors in determining the packer
chosen. The Likert-type question used a five point scale with 1 representing most
important and 5 representing least important. The scoring of the importance of
selected factors in determining the packer chosen is listed using the combined
means of all primary marketing options in Table 5.18. The results from individual
primary marketing options is listed in Appendix D. It would appear that
respondents scored the "price received" as the most important factor in
determining the packer chosen. This was followed by: the ability to trust the
packer; the quality of hog required; carcass information returned by the packer;

and the packer's reputation. It would appear that the location of the packer

83

Table 5.17 The Percentage of Hogs Purchased by Various Packers Within Each

 

 

 

 

 

 

 

 

 

Primary Marketing Option
g Purchasers LGrp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
IBP 1.4% 100% 1.6% 18.3%
Thorn Apple 74% 10.3% 75.2% 54% 78.2%
IPC 7.9% . 6.5% .
Rouths 2.3% 3.6% 6.8% 9%
Monfort 14.4% .
Excel 1.6% 0.7%
Unknown 82.9% 39.2% 12.1%

 

 

 

 

 

 

 

 

 

(.) Denotes no responses.

Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.
Grp 3 = Mich. Liv. Exch. - Yard Option.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Ind. Assembly - Auction Option.
Grp 6 = Mich. Liv. Exch. - Direct Option.

Table 5.18 The Importance of Selected Factors in Determining the Packer
Chosen, Combined Means of All Relevant Marketing Options

 

1 represents most important, 5 represents least important

 

 

Variable Rank Mean Std Dev
Price received 1 1.04 0.20
Ability to trust packer (eg. grading) 2 1.67 0.76
Quality of hog required 3 1.96 0.86
Carcass information returned 3 1.96 1.00
Packer's reputation 4 2.08 1.25
Quality of service by the packer 5 2.42 1.14
Location of the packer 6 2 63 1.01

Other *

(*) Light hogs due to limited space, the (N) for all variables was 24, except Other which was 1.

84

was the least important factor in determining the packer chosen. The high
standard deviations indicate that the consistency of the scoring for each factor
was low, thus reducing the reliability of the scores given.
9. Frequency of Hog Marketings

Producers were asked to identify the frequency of hog marketings using the
five categories given. These categories were: (a) weekly; (b) once every two
weeks; (c) once every three weeks; (d) monthly; and (e) other (to be identified).
The percentage of respondents using each category is listed by primary marketing
option used in Table 5.19. The majority of respondents using each of the
marketing options sold hogs either weekly or bi-weekly, except for respondents
primarily using the "Packer Buying Station" option where 50% were sold weekly
or biweekly, and 50% were sold monthly. This indicates that the majority of
respondents are taking advantage of price averaging by marketing more
frequently, thus evening out the peak and low prices.
10. Use of Price Risk Management Options

Producers were asked to identify the percentage of hog sold using the four
selected price risk management options. These options were: (a) hedging
(futures/options); (b) forward contracting; (c) other (to be identified); ((1) none.
The percentage of hogs sold by respondents using each price risk management
option is listed by primary marketing option used in Table 5.20. Very few hogs if
any were sold using the various price risk management options. The respondents
using the "Direct to Packer" option sold the most hogs using the various price risk

management options at 16.7%.

—- «WIS: l _ F

_ -LI

_. 1-

85

Table 5.19 The Frequency of Hog Marketings by Primary Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of J Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
producers sellin : _ (N=12) (N=6) (N=71) (Ni=10) (N=8) (N=12)
Weekly 75% 33.3% 34.7% 40% 37.5% 58%
Every 2 weeks 16.7% 16.7% 38.9% 30% 50% 33%
Every 3 weeks 5.5% 12.5%
Monthly 50% 9.7% 10%
Other 8.3% a 11.1%b 20% c 9% d

 

 

(.) Denotes no responses.

(c) Three times per year & three times per month.
(d) Weekly every fourth month.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Ind. Assembly - Auction Option.

Grp 6 = Mich. Liv. Exch. - Direct Option.

(N) Denotes the number of respondents.
(a) For three months of the year only.
(b) Usually no set pattern.

Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.
Grp 3 = Mich. Liv. Exch. - Yard Option.

Table 5.20 The Percentage of Hogs Sold Using Various Price Risk Management
Options Within Each Primary Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

Hogs sold (%) Grp l Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
using price risk
management tools
Hedge 11.7% 3.1% 1% 2.1%
(futures/options)
Forward 1.7% 2.9% 0.8%
contracting
Other I} 3.3% a
None 83.3% 100% 94% 99% 100% 97.1%

 

 

 

(a) Group marketing. (.) Denotes no responses.

See Table 5.19 for Grp definitions.

86

11. Distance to Marketing Method Locations

Producers were asked to identify the distance from their farms to the nearest
marketing method location. These locations were: (a) Packer; (b) Michigan
Livestock Exchange Yard; (c) Independent Assembler (trucker/broker/auction);
and (d) Packer Buying Station. The distances to each to marketing method
location from the respondents farm is listed by primary marketing option used in
Table 5.21. The average distances by primary marketing option used to; (a) a
Packer ranged from 83-153 miles, (b) a Michigan Livestock Exchange Yard
ranged from 25-36 miles, (c) an Independent Assembler ranged from 8-29 miles,

and (d) a Packer Buying Station ranged from 6-33 miles.

Table 5.21 Distance to the Nearest Marketing Method Location From

Respondents Farms, by Primary Marketing Option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distance in miles Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
to the nearest:
Packer 146 135 l 10 143 83 152
(N=1 l) (N=2) (N=22) (N=9) (N =3) (N=9)
Mich. Liv. 27 36 28 31 26 25
Exchange Yard (N=1 1) (N=6) (N=71) (N=9) (N=4) (N=12)
Independent 20 15 29 8 23 29
Assembler (N=7) (N =2) (N=15) (N=5) (N=8) (N =3)
Packer Buying 24 15.5 33 14 6 21
Station (N=9) (N=6) (N=15) (N=6) (N=2) (N=5)

 

 

(N) Denotes the number of respondents.
Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.
Grp 3 = Mich. Liv. Exch. - Yard Option.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Ind. Assembly - Auction Option.
Grp 6 = Mich. Liv. Exch. - Direct Option.

 

87

12. The Relative Ranking of Marketing Factors Affecting Price

Producers were asked to score the importance of two identified factors which
affect the price they receive for their hogs. The Likert-type question used a five
point scale with one representing most important, and five representing least
important. The respondent's results are listed by primary marketing option used in
Table 5.22. It would appear that respondents of all options felt that the
consistency of carcass quality was more important to the price they receive, than
the timeliness and stability of hog deliveries (when delivered, the ability to deliver
similar number at similar times). The high standard deviations indicate that the
consistency of the scoring for each factor was low, thus reducing the reliability of

the scores given.

Table 5.22 The Relative Ranking of Selected Factors Affecting Price, by

 

Primary Marketing Option
Mean m _N_
Dex

Grp 1 Timeliness & stability of hog deliveries 2.67 1.03 12
Consistency of carcass quality 1.75 0.92 12

Grp 2 Timeliness & stability of hog deliveries 3.2 1.60 5
Consistency of carcass quality 2.0 1.55 5
Grp 3 Timeliness & stability of hog deliveries 2.16 1.23 68
Consistency of carcass quality 1.90 1.19 68

Grp 4 Timeliness & stability of hog deliveries 3.2 1.08 10
Consistency of carcass quality 1.7 0.78 10

Grp 5 Timeliness & stability of hog deliveries 1.75 1.09 8
Consistency of carcass quality 1.38 0.70 8

Grp 6 Timeliness & stability of hog deliveries 2.58 1.26 12
Consistency of carcass quality 1.25 0.60 12

1 represented most important and 5 represented least important.

Grp 1 = Direct to Packer Option. Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 2 = Packer Buying Station Option. Grp 5 = Ind. Assembly - Auction Option.

Grp 3 = Mich. Liv. Exch. - Yard Option. Grp 6 = Mich. Liv. Exch. - Direct Option.

88

5.3 NET PRICE RECEIVED

The responses to the questions in this section were analyzed using descriptive
statistics which included; frequencies, means, counts, minimums, maximums, and
standard deviations. Descriptive statistics identify the central tendency of the
responses. Group means were used to compare the results of respondents for
each primary marketing option. The Oneway Analysis of Variance and associated
Post-Hoe Tukey test was used to determine if any significant differences existed
between group means. Correlation analysis and the associated Pearson
correlation coefficient was used to quantify linear relationships between selected
continuous variables. Linear regression analysis was used to determine
relationships between selected continuous and categorical variables.

Respondents were asked to list the average net price received per hog in 1993,
gross price (premiums included) minus the direct costs (transportation, commission
etc..). The average net price received per hundred weight was then calculated by
dividing the average net price received per hog, by the average live weight of
those hogs. When the six primary marketing options were compared a difference
in net price received on a per hundred weight (live) basis, was found to exist.
There was a large difference between the highest returning option and the lowest
returning option. Respondents selling "Direct to Packer" averaged a net return of
$48.12 per cwt, while producers using the "Independent Assembly-Auction"
averaged $43.16 per cwt. This difference amounts to $4.96/cwt or $11.90/hog
based on a 240 lb hog. The highest price achieved by individual producers using
many of the other options was greater than, or similar to the $48.12/cwt average

of the "Direct to Packer" method. The results are listed in Table 5 .23.

89

Table 5.23 A Comparison of the Average Net Prices Received by Primary
Marketing Option

 

 

   
     
 

 

  

 

 

 

 

 

 

 

 

 

 

Average * Average * Range in
Net Price Difference Net Price *
( r cwt) (per cwt) (per cwt)
1. Direct to Packer (N=11) $48.12 Base $45.00 - $50.25
2. Independent Assembly $46.38 - $1.74 $44.01 - $48.50
- Trucker/Broker (N=10)
3. Michigan Livestock Exchange $45.68 - $2.44 $40.00 - $49.00
- Direct to Packer (N=11)
4. Michigan Livestock Exchange $44.42 - $3.70 $40.00 - $47.50
-Yard (N=53)
5. Packer Buying Stations (N=5) $44.08 - $4.04 $40.82 - $47.04
6. Independent Assembly $43.16 - $4.96 $40.60 - $45.33
- Auction (N=7) u

 

(*) Net price figures for the 1993 fiscal year,(N) denotes the number of responses.

 

The Oneway Analysis of Variance and associated Post-Hoe Tukey Test was
used to test the hypothesis that there was a significant difference between the
mean net price received for the "Direct to Packer" marketing option, and the mean
net prices received for the other marketing options. The following null
hypothesis was tested: There is no difference between the mean net price
received for respondents using the "Direct to Packer" marketing option and the
mean net price received by producers using the other primary marketing options.

The results of the analysis reject the null hypothesis, thereby supporting the
hypothesis. The results of the test indicate that a significant difference exists
between the "Direct to Packer" marketing option and; (1) Independent Assembly-

Auction option, (2) Packer Buying Station option, and (3) Michigan Livestock

90

Exchange-Yard option. Marketing options with significantly different net prices
at the .05 level are listed in Table 5.24, and are denoted with the symbol (*).
Detailed results of the analysis are listed in Appendix E. The large standard
deviations in the mean net price, and the subsequently large range in the interval
for mean, is due in part to the small sample sizes obtained for the majority of the
options.

Table 5.24 Significant Differences in the Net Price Received, Means for Each
Marketing Option

 

 

 

Degrees of Sum of Mean 13 E
Source Freedom Squares S uares Ratio Prob.
Between Groups 5 153.7635 30.7527 4.9068 .0005
Within Groups 91 570.3348 6.2674
Total 96 724.0984

 

Correlation analysis and the associated Pearson correlation coefficient was
used to measure linear association between the net price and selected variables.
The Pearson correlation coefficient was used to quantify the strength of the linear
relationship which existed between net price and selected continuous variables.
Those variables with significant correlations at the .01 level are listed in Table
5.25. The results indicate that there is a low, but positive linear correlation
between net price and; (l) the number of hogs marketed, (2) the percent of hogs
sold using the "Direct to Packer" option, (3) the number of primary options used
in the last five years, (4) the average sow herd size, and (5) the value of farm
assets. A low, but negative linear relationship exists between net price and the

percent of hogs sold through the Michigan Livestock Exchange-Yard. A

91

positive correlation indicates that as the net price received increases, so does each
variable. A negative correlation indicates that as the net price received increases,
the percentage of hogs sold through the "Michigan Livestock Exchange-Yard"

decreases.

Table 5.25 Correlation Analysis Measuring the Linear Association of Selected

 

Variables With Net Price

Variables N Significance
1. Number of hogs marketed 97 .2735 *

2. Percent sold Direct to Packer 97 .3554 **

3. Percent sold Mich. Liv. Exch. - Yard 97 -.2615 *

4. Marketing options (#) used in the last 5 years 97 .3229 **

5. Sow herd size 74 .2899 *

6. Value of farm assets 97 .2639 *

l-tailed Significance: * -.01 ** -.001

 

In modelling the net price received versus selected variables, three linear
regression analyses were performed. This was done in an attempt to explain the
variation in net price received. The results of the regression analyses are listed in
Tables 5.26-5.28. Detailed results are listed in Appendix E. The first regression
analysis was performed using the variables identified in the Correlation analysis.
The variables were: the number of hogs marketed; the percentage of hogs sold
Direct to Packer; the percentage of hogs sold to the Michigan Livestock
Exchange-Yard; the number of marketing options used in the last 5 years; the size
of the sow herd; and the value of farm assets.

The results of the analysis support the hypothesis that a linear relationship

existed, as the F probability statistic was small. Using the Stepwise Method, it

92

was found that two of the variables could explain 37.2% of the variation in net
price, as evidenced by the Adjusted R Square value of 0.37161. The two
variables were: (1) the percentage of hogs sold Direct to Packer; and (2) the value
of farm assets. There was a positive correlation to net price received for both
variables, and they were statistically significant at the 95% confidence level. The

results are listed in Table 5.26.

Table 5.26 Regression Analysis Measuring Parameters Influencing Net Price

 

Received - 1
Multiple R .62395
R Square .3893]

Adjusted R Square .3716]
Standard Error 1.70724

Analysis of Variance

_DE Sum of Squares Mean Square
Regression 2 128.20851 64.10425
Residual 69 201.11189 2.91467
F = 21.99369 Significant F = .0000
Variable B _E B
Percent Sold Direct to Packer .037027 .007176
Value of Farm Assets .775049 .261717
(Constant) 43.295076 .464966

 

The second regression analysis was performed using the group of marketing
options available to respondents and the variable "net price received", to explain
the amount of variation in net price received that can be attributed to the
marketing option chosen. The marketing options were: Direct to Packer; Packer

Buying Stations; Michigan Livestock Exchange-Yard; Independent Assembly-

93

Trucker/Broker; Independent Assembly-Auction; and the Michigan Livestock

Exchange-Direct.

The results of the analysis support the hypothesis that a linear relationship
existed, as the F probability statistic was small. Using the Stepwise Method, it
p was found that the choice of three options could explain 12.8% of the variation
in net price received, as evidenced by the Adjusted R Square of 0.12776. The
options were: (1) Independent Assembly-Auction; (2) Packer Buying Stations;
and (3) Michigan Livestock Exchange-Yard. There was a negative correlation to

net price received for all three variables, and they were statistically significant at

the 95% confidence level. The results are listed in Table 5.27.

Table 5.27 Regression Analysis Measuring Parameters Influencing Net Price

 

Received - 2
Multiple R .39373
R Square .15502

Adjusted R Square .12776
Standard Error 2.56494

Analysis of Variance

m Sum of Squares
Regression 3 112.25118
Residual 93 61 1.84720
F = 4.88574 Significant F = .0013
Vm‘able B
Ind. Assembly-Auction -2.324286
Packer Buying Station -3.204952
Mich. Liv. Exchange-Yard ~2.600764
(Constant) 47.010952

Mean Square
37.41706

6.57900

SE B
.823885
1.276357
.661376
.559719

 

The third analysis was performed using individual variables, three separate

groups of variables and the variable "net price received", to explain the variation

94

in net price received. The variables were selected based on the author's
estimation of importance. The groups of variables selected were: (1) the
marketing option chosen - Direct to Packer, Packer Buying Stations, Michigan
Livestock Exchange-Yard, Independent Assembly-Trucker/Broker, Independent
Assembly- Auction, and the Michigan Livestock Exchange-Direct; (2) the
frequency of marketings - weekly, once every two weeks, once every three
weeks, monthly, and other; and (3) the primary purchaser (packer) - IBP, Thorn
Apple Valley, IPC, Rouths, Monfort, and Unknown. The individual variables
were: (4) the number of hogs marketed; (5) the percent of replacement gilts
purchased from independent purebred/Fl producers; (6) the payment basis (live
weight or grade & yield; (7) percent of hogs sold Direct to the Packer; and (8) the
value of farm assets.

The results of the analysis support the hypothesis that a linear relationship
existed, as the F probability statistic was small. Using the Stepwise Method, it
was found that eight of the variables could explain 54.95% of the variation in net
price, as evidenced by the Adjusted R Square value of 0.54950. The eight
variables were: (1) Michigan Livestock Exchange-Direct option; (2) the
Independent Assembly-Auction option; (3) marketing once every three weeks;
(4) marketing monthly; (5) Thorn Apple Valley as the primary purchaser; (6)
Rouths as the primary purchaser; (7) Monfort as the primary purchaser; and (8)
the value of farm assets. There was a negative correlation to net price received
for the Independent Assembly-Auction option, the Michigan Livestock
Exchange-Direct option, the monthly frequency of marketing, and the once every

three weeks frequency of marketing. A positive correlation to net price received

95

existed for three of the primary purchasers -- Monfort, Rouths, and Thorn Apple

Valley -- as well as the value of farm assets. All eight variables were statistically

significant at the 95% confidence level. The results are listed in Table 5.28.

Table 5.28 Regression Analysis Measuring Parameters Influencing Net Price

 

Received - 3
Multiple R .77523
R Square .60099

Adjusted R Square .54950
Standard Error 1.42570

 

Analysis of Variance

DE Sum of Squares
Regression 8 189.81286
Residual 62 126.02206
F = 11.67295 Significant F = .0000
Variable B
Ind. Assembly-Auction -2.092870
Monthly marketing -1.581299
Three week marketing -2.227662
Mich. Liv. Exchange-Direct -1.671 183
Rouths 2.666009
Monfort 2.964838
Thorn Apple Valley 2.572929
Value of farm assets .619368

(Constant) 43.478926

Mean Square
23.72661
2.03261

SE13
.768800
.581745
lu046523
.579649
.799800
.766197
.442285
.242640
.413275

 

96

5.4 PRODUCER PERCEPTIONS

The responses to the questions in this section were analyzed using descriptive
statistics which included frequencies, percentages, means, counts, minimums,
maximums, and standard deviations. Descriptive statistics identify the central
tendency of the responses. Group means were used to compare the results of
respondents using each primary marketing option.

Respondent's perceptions of the four marketing methods regarding selected
criteria was obtained using a Likert-type question. Producers were asked to rank
selected criteria on a three point scale, with 1 as the most favourable rank, and 3
as the least favourable rank. If a producer had no opinion regarding any of the
criteria they could indicate that response. The combined mean and standard
deviation of respondents using all primary marketing options is listed in Table
5.29. The mean and standard deviation of responses for each individual primary
marketing option is listed in Appendix F.

It would appear that: ( 1) the "Direct to Packer" method ranked the most
favourable in the areas of price received, cost to the producer, carcass information
availability, confidentiality, and quality of hog required; (2) the "Packer Buying
Station" method ranked the most favourable in the area of cost to the producer;
(3) the "Michigan Livestock Exchange (Yard, Direct to Packer)" method ranked
the most favourable in the areas of convenience of use, availability for
consultation, confidentiality, and trustworthiness; (4) the "Independent Assembly
(Trucker lBroker, Auction)" method did not have the most favourable rank in any
areas.

It would appear that: (1) the "Direct to Packer" method ranked the least

97

favourable in the area of convenience of use; (2) the "Packer Buying Station"
method did not have the least favourable rank in any area; (3) the "Michigan
Livestock Exchange (Yard, Direct to Packer)" method ranked the least favourable
in the areas of cost to the producer, and carcass information availability; (4) the
"Independent Assembly (Trucker, Broker, Auction)" method ranked the least
favourable in the areas of price received, cost to the producer, availability for
consultation, confidentiality, trustworthiness, and quality of hog required. The
high standard deviations indicate that the consistency of the ranking for each
factor was low, thus reducing the reliability of the ranks given.

There tends to be an association between the variable "primary marketing
option" and the variables; "price received using the Direct to Packer method",
"carcass/grading information availability using the Direct to Packer method",
"confidentiality using the Direct to Packer method", "trustworthiness of the
personnel associated with the Direct to Packer method", convenience of use of
the Michigan Livestock Exchange method", trustworthiness of the personnel
associated with the Michigan Livestock Exchange method", "the quality of hog
required by the Michigan Livestock Exchange method", and "the price received
by the Independent Assembly method". This indicates that there is a relationship
between the "primary marketing option" used and the perceptions of respondents

regarding the above listed variables.

98

Table 5.29 Scoring of Selected Criteria (Means for All Respondents)

One represented the most favourable score and three the least favourable score.

Criteria Que

Price received - Direct to Packer option (N=35)

Price received - Packer Buying Station option (N=36)

Price received - Michigan Livestock Exchange option (N295)
Price received - Independent Assembly option (N=37)
Criteria Two

Cost to the producer - Direct to Packer option (N=33)

Cost to the producer - Packer Buying Station option (N=33)
Cost to the producer - Michigan Livestock Exch. option (N=84)
Cost to the producer - Independent Assembly option (N=36)
Criteria Three

Convenience of use - Direct to Packer option (N=32)
Convenience of use - Packer Buying Station option (N=34)
Convenience of use - Michigan Livestock Exchange option (N=94)
Convenience of use - Independent Assembly option (N=38)
Criteria Four

Carcass information availability - Direct to Packer option (N=33)

Mean

1.14*
1.31
1.37
1.46

1.45*
1.45*
1.58
1.58

1.72
1.56
1.33*
1.39

1.24*

Carcass information availability - Packer Buying Stn option (N=34) 1.50
Carcass information availability - Michigan Liv. Ex. option (N=72) 1.97

Carcass information availability - Ind. Assembly option (N=28)
Criteria Five

Availability for consultation - Direct to Packer option (N=30)
Availability for consultation - Packer Buying Station option (N=34)
Availability for consultation - Michigan Liv. Exch. option (N=84)
Availability for consultation - Independent Assembly option (N=34)
Criteria Six

Confidentiality - Direct to Packer option (N=30)

Confidentiality - Packer Buying Station option (N=33)
Confidentiality - Michigan Livestock Exchange option (N=82)
Confidentiality - Independent Assembly option (N=32)

Criteria Seven

Trustworthiness - Direct to Packer option (N=32)
Trustworthiness - Packer Buying Station option (N=34)
Trustworthiness - Michigan Livestock Exchange option (N=93)
Trustworthiness - Independent Assembly option (N=39)

1.96

2.07
2.06
1.79*
2.18

1.87*
1.88
1.87*
2.12

1.31
1.32
1.30*
1.49

m

_Ile_v_

 

99

 

Table 5.29 (cont'd)
Mean Std
De!
Criteria Eight .
Quality of hog required - Direct to Packer option (N=34) 1.24* .50
Quality of hog required - Packer Buying Station option (N=34) 1.47 .66
Quality of hog required - Michigan Liv. Exch. option (N=87) 1.72 .73

Quality of hog required - Independent Assembly option (N=34) 1.85 .70

(*) Method with the most favourable score for each specific criteria.

5.5 MARKET PRICE INFORMATION SOURCES

The responses to the questions in this section were analyzed using descriptive
statistics which included; frequencies, percentages, and counts. Descriptive
statistics identify the central tendency of the responses. Average group
frequencies were used to compare the results of respondents using each primary
marketing option.

Producers were asked to rank selected market price information sources one
through four depending upon the number of sources they routinely relied upon.
If producers only used one or two market price information sources, then only
those were ranked. Thus the percentage of producers ranking information
sources 2 through 4 may not necessarily total 100%. The rank of selected market
price information sources by respondents is listed by primary marketing option
used in Table 5.30.

The majority of respondents primarily using the "Direct to Packer" and
"Independent Assembly-Trucker/Broker" options ranked satellite receivers as the
number one source of market price information. The majority of respondents

using the "Packer Buying Station," "Michigan Livestock Exchange-Yard," and

100

Table 5.30 The Ranking of Selected Market Price Information Sources by

 

 

 

 

 

 

 

Primary Marketing Option
Information Source Rank Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
N=12 N=6 =68 N=10 N= =12

Satellite Receivers 1 97.1% 16.7% 14.7% 60.0% 25.0% 16.6%
(eg. DTN, Pioneer) 2 . 33.3% 7.4% 10.0% . 16.6%

3 . . 4.4% . . 8.3%

4 33.3% 2.9% 12.5% 8.3%
USDA Reports 1 . 2.9% . 8.3%

2 8.3% 10.3% . 12.5% .

3 25.0% . 13.2% 40.0% . 16.6%

4 . 16.7% 16.2% 10.0% .
Land Grant Univ. 1 . . .
(eg. Mich. State) 2 8.3% . 1.5% . . 8.3%

3 . 16.7% 4.4% 10.0% 12.5% .

4 . 4.4% 20.0% 12.5% 8.3%
Market Advisory 1 8.3% 10.3% 12.5% 16.6%
Services 2 8.3% 14.7% . 25.0% .

3 16.7% . 5.9% 30.0% . 16.6%

4 . 16.7% 5.9% . 50.0% 8.3%
Futures Brokerage 1 . 1.5% . 8.3%
Services 2 8.3% 1.5% 10.0% 8.3%

3 8.3% 2.9% . .

4 16.7% 1.5% 10.0%
Local Radio Station 1 16.7% 20.6% 10.0% 25.0% 16.6%

2 33.3% 17.6% 40.0% 12.5% .

3 . . 7.4% 10.0% 12.5% .

4 8.3% 7.4% . 25.0% 8.3%
Local Newspaper 1 . 5.9% . 12.5%

2 16.7% 19.1% 10.0% .

3 33.3% 11.8% . 12.5% .

4 8.8% 8.3%

 

 

101

 

 

 

Table 5 .30 (cont'd)
Information Source Rank Grp 1 Grp 2 Grp 3 Grp 4 Grp 5 Grp 6
N=12 N=6 N=68 N=10 N=8 N=12
Neighbours 1 1.5% . . 8.3%
2 2.9% 12.5% 12.5% 8.3%
3 . 8.8% . . .
4 16.7% 16.2% . . 8.3%
Personnel of Your 1 . 66.6% 41.1% 20.0% 25.0% 25.0%
Primary Marketing 2 41.7% . 14.7% 30.0% 12.5% 16.6%
Option 3 . 13.2% 10.0% 25.0% 8.3%
4 16.7% 5.9% 10.0% . .
Personnel of Another 1 . 1.5% . . .
Primary Marketing 2 16.7% 1.5% . 25.0% 8.3%
Option 3 . 4.4% . . .
4 8.3% .
Other 1 . . 10.0% e . .
2 8.3 a 2.9% b . . 16.6%
3 . 1.5% c . 12.5% f
4 1.5% d .
(N) Denotes the number of responses. (.) No responses.

(a) Elanco newsletters.

(b) T.V. & Feed Salesman.

(c) Farmers Advance.

(d) Market forecaster George Kleinman.

(e) FM Receivers.
(f) Farm Magazines.

Grp l = Direct to Packer Option.

Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exch. - Yard Option.

Grp 4 = Ind. Assembly — Trucker/Broker Option.
Grp 5 = Ind. Assembly - Auction Option.

Grp 6 = Mich. Liv. Exch. - Direct Option.

102

5.6 INFORMATION SOURCES USED FOR MARKET METHOD
EVALUATION

The responses to the questions in this section were analyzed using descriptive
statistics which included frequencies, percentages, and counts. Descriptive
statistics identify the central tendency of the responses. Average group
frequencies were used to compare the results of respondents using each primary
marketing option.

Producers were asked to rank the top two market method information sources
from the selected list (the indicated rankings depending, of course, upon the
number of sources they routinely relied upon). Since the second through fourth
rankings were optional they did not necessarily total 100%. The average results
from all respondents regardless of marketing option, is listed in Table 5.31.
Individual marketing option results are listed in Appendix G.

The largest percentage of producers ranked the following information sources
number one in regards to each marketing method: "Direct to Packer" - word of
mouth; "Packer Buying Stations" and "Michigan Livestock Exchange" - past
experiences; and "Independent Assembly" - personnel of the marketing method.
The majority of respondents had received no information regarding the "Direct to

Packer" and "Packer Buying Station" methods.

Table 5.31

103

Combined Means for All Respondents (N=121)

Information Sources Used to Evaluate the Marketing Methods,

 

Information Sources

 

 

 

 

 

 

 

 

Word of Mouth 1 8.8% 6.3% 8.2% 12.0%
2 3.3% 9.0% 7.9% 13.5%
Personnel of the 1 7.9% 12.0% 22.5% 17.8%
Marketing Method 2 4.4% 3.2% 13.9% 8.6%
Advertising 1 0.2% 0.2% 1.7%
2 0.2% 4.2% .
Market Advisory Services 1 0.2% 0.2% 2.8% 2.1%
2 2.8% 1.6% 3.5% 1.9%
Futures Brokerage Services 1
2
Media 1 . 2.8% 2.8%
2 0.5% 4.0% 2.1%
Extension Meetings or 1 . . .
Personnel 2 1.9% 0.9% 4.9%
Past Experiences 1 7.2% 14.1% 32.2% 12.2%
2 1.9% 4.4% 6.5% 2.3%
Other 1 0.5% a 0.2% a 1.2% a 2.4% e
2 1.6% b 0.2% d 0.2% c 0.2% c
Other 1 . 0.2% c 0.2% d .
2 0.2% c . 0.2% f
Received No Information 75.4% 66.8% 29.9% 49.0%
(.) No responses. ((1) National qug magazine.
(a) Personal economic comparison. (e) Feed salesman, personal economic comparison,
(b) Producer investigation. 1313119113ng magazine.

(c) Feed salesman.
Method 1 = Direct to Packer
Method 2 = Packer BuyinJg Stations

(1) People contacting the producer.
Method 3 = Michigan Livestock Exchange
Method 4 = Independent Assembly

CHAPTERVI

SUMMARY, FINDINGS,
CON CLUSIONS/IMPLICATIONS

6.1 SUMMARY

The primary purpose of this study was to compare the six marketing options
found within the four predominant methods of marketing swine in Michigan. The
specific research objectives of the study were:

1. To describe the characteristics of producers using the six marketing options
found within the four predominant methods of marketing swine in Michigan.

2. To compare the net price received by the six marketing options found within
the four predominant methods of marketing swine in Michigan. For the
purpose of this study, the net price is defined as the difference between the
gross price (i.e. the price before deductions) and the direct marketing costs
(commission, transportation fees, insurance, etc..).

3. To describe the producer's perceptions regarding selected criteria pertaining to
the four predominant methods of marketing swine in Michigan.

4. To determine the market price information sources of producers using each of
the six marketing options found within the four predominant methods of
marketing swine in Michigan.

5. To determine the top two sources of information used by producers in

evaluating the four predominant methods of marketing swine in Michigan.

104

105

The sample included 121 swine farrow to finish and finishing producers in the
state of Michigan. The majority of the producers were members of the Michigan
pork producers Association. Membership is voluntary and the members market
approximately 65% of the hogs sold in Michigan. Of the 1024 producers that
were contacted, 121 responded for a return rate of 11.8%.

A survey instrument containing 239 Likert-type, ranking, closed response,
dichotomous, and multiple choice questions was developed to collect the data.
The survey instrument was divided into seven sections: General Farm
Characteristics; Marketing Options; Marketing Revenues and Costs; Marketing
Characteristics; Marketing Information; Production Characteristics; and
Demographic Characteristics. The data analysis was based on the responses to
the 239 questions and seven sections.

The returned questionnaires were processed by computer using the Lotus 1-2-3
spreadsheet 2.3 version, and the Statistical Package for the Social Sciences,
SPSS/PC+ 4.0 version. The responses to the questions were analyzed using
descriptive statistics which included; frequencies, percentages, means, counts,
minimums, maximums, and standard deviations. The Oneway Analysis of Variance
and associated Post-Hoe Tukey test was used to determine if any significant
differences existed between group means. Correlation analysis and the
associated Pearson correlation coefficient was used to quantify the linear
relationships between selected continuous variables. Crosstabulation analysis
and Linear Regression analysis were used to measure the relationship between

selected variables.

106

6.2 FINDINGS

Data analyses revealed:

1.

The majority of the respondents within each marketing option ranked the
swine enterprise first, except for the respondents using the "Independent
Assembly-Auction" option; whose majority ranked it second.

The majority of the respondents using the "Packer Buying Station",
"Michigan Livestock Exchange-Yard", "Independent Assembly-Auction",
and "Michigan Livestock Exchange-Direct" options were either sole
proprietorships or spousal partnerships. Respondents using the "Direct to
Packer", and "Independent Assembly-Trucker/Broker" options had a greater
percentage of family partnerships, family corporations, non-family
corporations, and unrelated partnerships than the other four primary
marketing options.

Involvement in production alliances/producer networks, by respondents
using the six marketing options, was generally low.

The median tillable acres cropped by the respondents using the six marketing
options ranged from 182.5 to 77 5 acres. All but two of the marketing options
had respondents who cropped 0 acreage.

The majority of respondents using the "Direct to Packer" and "Michigan
Livestock Exchange-Direct" options were between the ages of 20-45. The
majority of respondents using the "Packer Buying Station", "Michigan
Livestock Exchange-Yard", and the "Independent Assembly-Auction"
options were over the age of 45. The respondents using the "Independent

Assembly-Trucker/Broker" option were equally split between the age range

107

of 20-45 and over 45 years of age.

The majority of respondents using the "Direct to Packer" option had
completed post secondary school education. The majority of the respondents
using the "Michigan Livestock Exchange-Yard", "Independent Assembly-
Trucker/Broker", "Independent Assembly-Auction", and "Michigan Livestock
Exchange-Direct" options had completed a secondary school education or
less. The respondents primarily using the "Packer Buying Station" option
were equally split between completing post secondary school education and
completing secondary school education or less.

The majority of respondents using the "Direct to Packer", "Michigan
Livestock Exchange-Direct to Packer", and "Independent Assembly-
Trucker/Broker" options had farm assets valued at over $500,000. The
majority of the respondents primarily using the "Packer Buying Station",
"Michigan Livestock Exchange-Yard", and the "Independent Assembly-
Auction" options had farm assets valued at less than $500,000. There tends
to be an association between the variable "primary marketing option" and the
variable "value of farm assets". This indicates that there is an association
between the "primary marketing option" used and the value of farm assets
possessed by respondents using that option.

A larger percentage of the respondents using the "Packer Buying Station",
"Michigan Livestock Exchange-Yard", and the "Independent Assembly-
Auction" options had net farm incomes less than $25,000 compared to the
respondents using the other three marketing options. The "Independent

Assembly-Auction" option was the only marketing option having no

10.

11.

108

respondents with a net farm income in excess of $100,000.

The median sow herd sizes of respondents using the six marketing options
ranged from 55 to 352 sows. The largest farrow to finish respondent (2000
sows) and smallest farrow to finish respondent (3 sows) both used the
"Michigan Livestock Exchange-Yard" option.

The majority of all farrow to finish respondents purchased their replacement
boars from independent F1/purebred suppliers or corporate suppliers (eg. PIC,
Dekalb), and replaced gilts from their own herds.

Less than 20% of all respondents weighed hogs prior to sale. Split-sex
feeding was more common within the "Direct to Packer" and "Michigan
Livestock Exchange-Direct to Packer" options. Artificial insemination was
used by 50% of the farrow to finish respondents using the "Direct to Packer"
option. The number of respondents relying on packers to co-ordinate their
feeding programs was negligible. The majority of respondents using the
"Direct to Packer" marketing option operate barns on an all in/all out basis, as
do 50% of the respondents using the "Michigan Livestock Exchange-Direct"
option. Three site production is used by 50% of the farrow to finish
respondents using the "Direct to Packer", and "Packer Buying Station"
options. These results indicate that respondents marketing "Direct to the
Packer" are the most progressive. There tends to be an association between
the variable "primary marketing option" and the variables "split-sex feeding
for market hogs" and "barns being operated on an all in/all out basis". This
indicates that there was an association between the "primary marketing

option" used and the percentages of producers who used these production

12.

13.

14.

109

practices.

The average percentage of hogs sold through the primary marketing options
ranged from 84.6% to 97.5%. This indicated that respondents tend to
concentrate their marketings in the option of choice. However, it was not
uncommon for respondents to use one other option in addition to the primary
one. Respondents using the "Direct to Packer", and "Independent Assembly-
Trucker/Broker" options have utilized more marketing options in the last five
years than the other respondents.

It would appear that respondents scored the "price received" as the most
important factor in determining the type of marketing option chosen. This
was followed by; ease of use, quality of hog required by the buyer, costs, and
the location of the buyer. It would appear that respondents scored the sex of
the hog (gilt vs. barrow) as the least important factor in determining the type
of marketing option chosen. There tends to be an association between the
variable "primary marketing option" and the variables "quality of hog
required by the purchaser", "payment basis", and personal marketing skills".
This indicates that there was a relationship between the "primary marketing
option" used and the scores received by the three variables.

The largest numbers of hogs were sold by respondents using the "Direct to
Packer", "Independent Assembly-Trucker/Broker", and "Michigan Livestock
Exchange-Direct to Packer" options (median values ranging from 1815 to
3515.5). The other three primary marketing options had median hog sales per
respondent ranging from 426 to 900. The number of respondents represent

approximately 2% of the pork producers in Michigan, however they sold

15.

16.

110

more than 10% of the hogs produced in the state. Of the 269,144 hogs
captured by the study, 59% were sold using the "Direct to Packer",
"Independent Assembly-Trucker/Broker", and "Michigan Livestock
Exchange-Direct" options.

The heaviest hogs were sold by the respondents using the "Packer Buying
Station" option. Respondents using the "Direct to Packer", "Independent
Assembly- Trucker/Broker", and "Michigan Livestock Exchange-Direct"
options sold more hogs on a grade and yield basis than the other three
primary marketing options. Producers using the "Packer Buying Station" and
"Independent Assembly-Auction" options sold no hogs on a grade and yield
basis. There tends to be an association between the variable "primary
marketing option" and the variable "payment basis for the hogs marketed".
This indicates that there was a relationship between the "primary marketing
option" used and whether the majority of hogs were marketed on a live
weight or grade & yield basis.

The premiums received were primarily quality related, less commonly they
were received for distance to market and time of delivery. The discounts
were primarily due to quality and the need for sorting. The premiums,
discounts, and costs were difficult to compare as respondents using some
marketing options were unaware of specific amounts being added to or
deleted from their payments. The costs for the "Michigan Livestock
Exchange-Yard" option were low as the majority of respondents were only
aware of the transit insurance and swine identification costs. More costs

were known for the "Michigan Livestock Exchange-Direct" option than the

17.

18.

19.

20.

Ill

MLE-Yard, but again not all were identified.

The hogs sold on a grade & yield basis were found to return an average of
$1.39 per hundred weight more than those sold on a live weight basis.
However, this difference was not found to be statistically significant.

Thorn Apple Valley was the primary packer for the majority of respondents,
except for those using the "Packer Buying Station" option who sell
exclusively to IBP. For 82.9% of the hogs sold by respondents using the
"Michigan Livestock Exchange-Yard" option, the buyers identity was
unknown. There tends to be an association between the variable "primary
marketing option" and the variable "primary purchaser (packer)". This
indicates that there was a relationship between the "primary marketing
option" used and the identity of the packer who purchased those hogs.

It would appear that respondents scored the "price received" as the most
important factor in determining the packer chosen. This was followed by: the
ability to trust the packer; the quality of hog required; carcass information
returned by the packer; and the packer's reputation. It would appear that the
location of the packer was the least important factor in determining the
packer chosen.

The majority of respondents using each of the marketing options sold hogs
either weekly or bi-weekly, except for respondents primarily using the
"Packer Buying Station" option where 50% were sold weekly or biweekly,
and 50% were sold monthly. This indicates that the majority of respondents
are taking advantage of price averaging by marketing more frequently, thus

evening out the peak and low prices.

21.

22.

23.

24.

25.

26.

112

Very few hogs if any were sold by respondents using the various price risk
management options. The respondents using the "Direct to Packer" option
sold the most hogs using the various price risk management options at 16.7%.
The average distances by primary marketing option used to: (a) a Packer
ranged from 83-153 miles; (b) a Michigan Livestock Exchange-Yard ranged
from 25-36 miles; (c) an Independent Assembler ranged from 8-29 miles; and
(d) a Packer Buying Station ranged from 6-33 miles.

On average, it would appear that respondents of all options felt that the
consistency of carcass quality was more important to the price they receive,
than the timeliness and stability of hog deliveries (when delivered, the ability
to deliver similar number at similar times).

There was a large difference between the highest returning option and the
lowest returning option. Respondents selling "Direct to Packer" averaged a
net return of $48.12 per cwt, while producers using the "Independent
Assembly-Auction" averaged $43.16 per cwt. This difference amounts to
$4.96/cwt or $11.90/hog based on a 240 1b hog. The highest price achieved
by individual producers using many of the other options was greater than or
similar to the $48.12/cwt average of the "Direct to Packer" method.

A significant difference in the means of the net price received existed
between the "Direct to Packer" marketing option and; (1) the "Independent
Assembly-Auction" option, (2) the "Packer Buying Station" option, and (3)
the "Michigan Livestock Exchange-Yard" option.

There was a low, but positive linear correlation between net price and; (1) the

number of hogs marketed, (2) the percent of hogs sold using the "Direct to

27.

28.

29.

113

Packer" option, (3) the number of primary options used in the last five years,
(4) the average sow herd size, and (5) the value of farm assets. A low, but
negative linear correlation existed between net price and the percent of hogs
sold through the Michigan Livestock Exchange-Yard.

It was found that two of the variables could explain 37.2% of the variation in
net price. The two variables were: (1) the percentage of hogs sold Direct to
Packer; and (2) the value of farm assets. There was a positive correlation to
net price received for both variables, and they were statistically significant at
the 95% confidence level.

It was found that the choice of three options could explain 12.8% of the
variation in net price received. The options were: (1) Independent Assembly-
Auction; (2) Packer Buying Stations; and (3) Michigan Livestock Exchange-
Yard. There was a negative correlation to net price received for all three
variables, and they were statistically significant at the 95% confidence level.
It was found that eight of the variables could explain 54.95% of the variation
in net price received. The eight variables were: (1) the Michigan Livestock
Exchange-Direct option; (2) the Independent Assembly-Auction option; (3)
marketing once every three weeks; (4) marketing monthly; (5) Thorn Apple
Valley as the primary purchaser; (6) Rouths as the primary purchaser; (7)
Monfort as the primary purchaser; (8) and the value of farm assets. There was
a negative correlation to net price received for the Independent Assembly-
Auction option, the Michigan Livestock Exchange-Direct option, marketing
every three weeks, and the monthly frequency of marketing. A positive

correlation to net price received existed for three of the primary purchasers --

30.

31.

32.

114

Monfort, Rouths, and Thorn Apple Valley -- as well as the value of farm
assets. All eight variables were statistically significant at the 95% confidence
level.

It would appear that: (1) the "Direct to Packer" method scored the highest in
the areas of price received, cost to the producer, carcass information
availability, confidentiality, and quality of hog required; (2) the "Packer
Buying Station" method scored the highest in the area of cost to the
producer; (3) the "Michigan Livestock Exchange (Yard, and Direct)" method
scored the highest in the areas of convenience of use, availability for
consultation, confidentiality, and trustworthiness; (4) the "Independent
Assembly (Trucker/Broker, Auction)" method did not have the highest score
in any areas.

It would appear that: (1) the "Direct to Packer" method scored the lowest in
the area of convenience of use; (2) the "Packer Buying Station" method did
not have the lowest score in any area; (3) the "Michigan Livestock Exchange
(Yard, Direct to Packer)" method scored the lowest in the areas of cost to the
producer, and carcass information availability; (4) the "Independent Assembly
(Trucker/Broker, Auction)" method scored the lowest in the areas of price
received, cost to the producer, availability for consultation, confidentiality,
trustworthiness, and quality of hog required.

There tends to be an association between the variable "primary marketing
option" and the variables; "price received using the Direct to Packer method",
"carcass/grading information availability using the Direct to Packer method",

"confidentiality using the Direct to Packer method", "trustworthiness of the

33.

34.

115

personnel associated with the Direct to Packer method", convenience of use
of the Michigan Livestock Exchange method", "trustworthiness of the
personnel associated with the Michigan Livestock Exchange method", "the
quality of hog required by the Michigan Livestock Exchange method", and
"the price received by the Independent Assembly method". This indicates
that there is a relationship between the "primary marketing option" used and
the perceptions of respondents regarding the above listed variables.

The majority of respondents primarily using the "Direct to Packer" and
"Independent Assembly" options ranked satellite receivers as the number one
source of market price information. The majority of respondents primarily
using the "Packer Buying Station" option ranked the personnel of their
marketing option as the number one source of market price information. The
single largest percentage of respondents primarily using the "Michigan
Livestock Exchange-Yard" and "Michigan Livestock Exchange-Direct"
options also ranked the personnel of the their marketing option as the
number one source of market price information. The respondents primarily
using the "Independent Assembly—Auction" option had three groups of 25%,
each individually ranking satellite receivers, local radio stations, and the
personnel of their marketing option as the number one source of market price
information.

The largest percentage of producers ranked the following information
sources number one in regards to each marketing method; "Direct to Packer"
- word of mouth, "Packer Buying Stations" and "Michigan Livestock

Exchange" - past experiences, "Independent Assembly" ~personnel of the

116

marketing method. The majority of respondents had received no information

regarding the "Direct to Packer" and "Packer Buying Station" methods.

6.3 CONCLUSIONS/IMPLICATION S

Based on the studies findings, the following conclusions and implications were

drawn:

1.
i)

Descriptive characteristics pertaining to the six marketing options.

Direct to Packer - Larger swine operations typically use this marketing
option. They tend to concentrate primarily on swine production, have a
larger value of farm assets, and net farm incomes over $25,000. The
producers are younger (under 45 years of age) and tend to have a post
secondary school education. The tillable acreage cropped, sow herd sizes,
and the number of hogs sold per year tend to be larger. Producers primarily
using this marketing option tend to be more inclined to use progressive
production practices.

Packer Buying Stations - Smaller swine operations typically use this
marketing option. They tend to concentrate primarily on swine production,
have a smaller value of farm assets, and net farm incomes under $25,000. The
producers are older (over 45 years of age) and the level of education
completed varies. The tillable acreage cropped, sow herd sizes, and number
of hogs sold per year tend to be smaller. Producers primarily using this
marketing option tend to be less inclined to use progressive production

practices.

iii)

V)

117

Michigan Livestock Exchange (Yard) - Smaller swine operations typically
use this marketing option. They tend to concentrate primarily on swine
production, have a smaller value of farm assets, and net farm incomes can vary
(greater or less than $25,000). The producers tend to be older (over 45 years
of age) and have less than a post secondary school education. The tillable
acreage cropped, sow herd sizes number of hogs marketed per year tend to
be smaller. Producers primarily using this marketing option tend to be less
inclined to use progressive production practices.

Independent Assembly (Trucker/Broker) - Larger swine operations typically
use this marketing option. They tend to concentrate primarily on swine
production, have a larger value of farm assets, and net farm incomes over
$25,000. The producers tend to be older (over 45 years of age) and have
completed a secondary school education. The tillable acreage cropped, sow
herd sizes, and the number of hogs marketed per year tend to be larger.
Producers primarily using this marketing option tend to be less inclined to use
progressive production practices.

Independent Assembly (Auction) - Smaller swine operations typically use this
marketing option. They tend to be more diversified, have a smaller value of
farm assets, and net farm incomes under $25,000. The producers tend to vary
in age, and have completed a secondary school education. The tillable
acreage cropped, and the sow herd sizes and the number of hogs marketed
per year tend to be smaller. Producers primarily using this marketing option

tend to be less inclined to use progressive production practices.

vi) Michigan Livestock Exchange (Direct) - Larger swine operations typically

118

use this marketing option. They tend to concentrate primarily on swine
production, have a larger value of farm assets and net farm incomes over
$25,000. The producers tend to vary in age and education level completed.
The tillable acreage cropped, sow herd sizes and the number of hogs
marketed per year tend to be larger. Producers primarily using this marketing
option tend to be more inclined to use progressive production practices.

The fact that there was a statistically significant difference in the means of the
net price received between the "Direct to Packer" marketing option and; (1)
the "Independent Assembly-Auction" option, (2) the "Packer Buying Station"
option, and (3) the "Michigan Livestock Exchange-Yard" option is extremely
important, but is also somewhat misleading. The average net price received
for the "Direct to Packer" option was higher, however the ranges in net price
received within all options was extreme. Individual respondents within the
"Independent Assembly-Trucker/Broker" and "Michigan Livestock

Exchange-Yar options surpassed the average net price received for the
"Direct to Packer" option. Individual respondents within the "Michigan
Livestock Exchange-Yard" and "Packer Buying Station" options were less
than a dollar per hundred weight under the average net price received for the
"Direct to Packer" option.

In attempting to explain the range in net price received within each
marketing option, it can be hypothesized that perhaps not all of the hogs
being sold are of the same quality, and thus are not receiving the same

premiums or prices. This is supported by the fact that the ranges in premiums

(primarily for quality) within the marketing options was also extreme. As well

119

discounts were being levied within certain marketing options primarily due to
quality and sorting. Even though the majority of hogs are sold on a live
weight basis, packers tend to do carcass evaluations on the hogs they
purchase. For the "Direct to Packer" option it can also be hypothesized that
since it takes more market pricing knowledge to use this option, that some
respondents were not as well informed as others, and hence have not
received sufficient information to negotiate a higher value agreement. Lastly,
it may simply be that some respondents are more skilful negotiators/marketers
than their counterparts using the same option.

On average, respondents use a variety of options to market their hogs. For
example, only 85% of the hogs sold through the "Direct to Packer" option go
direct, the remainder are sold through Packer Buying Stations, and Michigan
Livestock Exchange-Yards. Even the respondents primarily using the
Michigan Livestock Exchange-Yard option only market 96% (on average) of
their hogs in this manner. The remainder are sold elsewhere. As mentioned
within the results section, the average net price received for each option was
generated only by the hogs sold using that primary marketing option, not the
various other options. When the total average net price received per option
is calculated (based on the average net prices, and the percentages sold to

each option) a more accurate figure is obtained.

120

Formula: The sum of the percentage sold to each marketing option x the average

price received by each marketing option (per hundred weight).

 

i) Direct to Packer Option
Hogs sold Direct to Packer - .846 x $48. 12 = $40.71
Hogs sold to Packer Buying Stations - .046 x $44.08 = $2.03
Hogs sold to Mich. Liv. Exchange-Yard - .108 x $44.42 = $$4.80
47.54

Primary Option Average = $48.12/cwt
Total Option Average = $47.54/cwt

 

iii) Michigan Livestock Exchange-Yard
ii) Packer Buying Station

Hogs sold to Packer Buying Stations - .882 x $44.08 = $38.88
Hogs sold to Mich. Liv. Exchange-Yard - .118 x $44.42 = $5.24

 

$44.12
Primary Option Average = $44.08/cwt
Total Option Average = $44.12/cwt
iii) Michigan Livestock Exchange-Yard
Hogs sold to Mich. Liv. Exchange-Yard - .96 x $44.42 = $42.64
Hogs sold Direct to Packer - .007 x $48.12 = $0.34
Hogs sold to Packer Buying Stations - .006 x $44.08 = $0.26
Hogs sold to Ind. Assembly-Auction - .027 x $43.16 = $1.12
$44.41

Primary Option Average = $44.42/cwt
Total Option Average = $44.41/cwt

 

iv) Independent Assembly-Trucker/Broker

Hogs sold to Ind. Assembly.-Trucker/Broker - .965 x $46.38 = $44.76
Hogs sold to Packer Buying Stations - .015 x $44.08 = $0.66
Hogs sold to Mich. Liv. Exchange-Yard - .02 x $44.42 = $0.82

$46.31

Primary Option Average = $46.38/cwt
Total Option Average = $46.43/cwt

121

v) Independent Assembly-Auction

The total option average cannot be completed as 1.8% are sold through
the freezer trade and the average net price received for this is unknown.

 

vi) Michigan Livestock Exchange-Direct

Hogs sold to Mich. Liv. Exchange-Direct - .975 x $45.68 = $44.54
Hogs sold to Ind. Assembly-Auction - .025 x $43.16 = $1.08
$45.62

Primary Option Average = $45.68/cwt
Total Option Average = $45.62/cwt

 

The net price received for most marketing options remained relatively similar
except the "Direct to Packer" option which decreased $0.58 per hundred weight
(live). The use of various marketing options would suggest that the respondents
were not able to, or comfortable with marketing their hogs strictly through one
channel. It can be hypothesized that the hogs are not all uniform in their type,
and that they must be sold using various options, according to demand. Another
possibility is that the hogs are similar, but respondents are checking the price
received from the primary option, with the other available options.

4. From the regression analyses and subsequent net price received models, it can
be concluded that the option chosen is just one small part of the complexity
affecting the variation in net price received. Simply choosing to market their
hogs "Direct to the Packer", does not guarantee the highest price.

i) In the first model it was found that the value of the farm assets and the
percentage of hogs sold "Direct to the Packer" could explain 37% of the
variation in net price. Since both were positively correlated with net price it

can be assumed that the higher the value of farm assets, and percentage of

122

hogs sold "Direct to Packer", the higher the net price received will be. This
suggests that size is an important factor in determining the net price received,
especially knowing that a requirement of marketing direct is the ability to
deliver a semi-load of hogs (approximately 180).

In the second model it was found that the "Independent Assembly-Auction",
"Packer

Buying Station", and "Michigan Livestock Exchange-Yard" options could
explain almost 13% of the variation in net price. Since all three were
negatively correlated with net price it can be assumed that using these
options will lower the net price received. This suggests that how the hogs
are marketed is an important factor in determining the net price received.

In the third model it was found that, (1) the "Michigan Livestock Exchange-
Direct" option, (2) the "Independent Assembly-Auction" option, (3)
marketing once every three weeks, (4) marketing monthly, (5) Thorn Apple
Valley as the primary purchaser, (6) Rouths as the primary purchaser, (7)
Monfort as the primary purchaser, and (8) the value of farm assets could
explain just under 55% of the variation in net price. Since the "Independent
Assembly-Auction" option, the "Michigan Livestock Exchange-Direct"
option, marketing monthly and every three weeks were negatively correlated
to net price received, it can be assumed that using the two options and one
marketing frequency will lower the net price received, compared to marketing
"Direct to the Packer", and marketing weekly. Since the three primary
purchasers were positively correlated with net price it can be assumed that

selling to these buyers would improve the net price received as compared to

123

selling to IBP. This suggests that how, when and to whom the pigs are sold
are important factors in determining the net price received.

Even though only 2% of the hog producers in the State of Michigan were
surveyed, over 10% of the state's hog marketings were captured. This would
suggest that the proportion of total numbers sold using the various options
are relative indicators of the numbers sold via these options throughout the
state. As well, the majority of the 121 respondents (72%) marketed their hogs
through a yard type of option (i.e. Packer Buying Station, Michigan
Livestock Exchange-Yard, Independent Assembly-Auction) however the
majority of hogs (59%) were sold through a more direct type of option (i.e.
Direct to Packer, Michigan Livestock Exchange—Direct, Independent
Assembly-Trucker/Broker). Thus the 28% of respondents using a more direct
type of option are marketing 59% of the 269,144 hogs captured by the
survey. This reinforces the fact that operations supplying larger numbers of
hogs tend to use a more direct type of option.

The number of hogs being sold on a grade and yield basis is low, however
those hogs are garnering a higher price than the ones sold on a live weight
basis. This would suggest that the hogs are of a higher quality and thus are
receiving higher premiums and hence higher prices. It can be concluded then
that higher quality hogs are being sold on a grade and yield basis. The
implications of this are directly related to the price discovery mechanism. At
the present time price discovery for the industry is completed on a live weight
basis. Even though the present number of hogs being sold on a grade and

yield basis is small, they need to be examined as a factor in establishing prices

124
in Michigan.
On average, the total costs (for the options known) are relatively equal, it is
the price that largely differs. The cost of using a particular option should not
be a hindrance if the net price received outweighs those costs. The costs will
not be greatly reduced by changing the marketing option primarily used, it is
the price that is volatile and must be focused on to increase the producers'
margins.
The choice of packer is primarily based on the prices respondents receive for
their hogs. The location of the packer does not appear to be a factor. This
would imply that all packers are on an equal footing in attracting hogs,
regardless of location. Distant packers willing to pay producers more than
their closer competitors effectively neutralize the location advantage retained
by the closer competitors. This is a critical factor in Michigan, as Michigan is
a hog deficit state and Thorn Apple Valley needs the state's hog supply and
more to remain at full capacity.
Respondents generally perceived the "Direct to Packer" option to be more
favourable in regards to selected criteria than the other options, however few
respondents used this option. A number of the producers surveyed were not
of sufficient size to fill a semi-load of hogs (the prerequisite for selling direct),
however there were some that could of, but chose not to. It can be
hypothesized that producer marketing apathy (producers prefer not to be
involved with the marketing) may prevent more respondents from utilizing
this option. This hypothesis is supported by the fact that some of the

respondents selling large numbers of hogs (sufficient to fill a semi-load) are

125

marketing through yard type options.

10. If a respondent wants to market "Direct to the Packer" they will require a
direct link to current market price information (i.e. satellite receivers), rather
than relying on the personnel associated with their marketing option. This
would suggest that it is important to personally monitor the price of hogs in
using this option. As well it indicates that respondents were more
knowledgeable in regards to locating and processing market pricing

information, and employing marketing skills.

As the industry moves toward more liberalized marketing options some caution
is needed. Respondents must examine their particular needs and abilities, and
how those factors can be best combined with the goal of increased net price.
Many respondents are making a conscious decision to let others market their
hogs. Size indicators, and the option chosen could only explain a fraction of the
variation in net price. At best only 55.5% of the variation in net price could be
explained. This lends support to the complexity of the issue, and strengthens the
case for future research in this area. The fact that this study was done at a single
point in time and is not on going avoids the obvious question -- what would
happen to the net price if more respondents or all respondents were to market
"Direct to the Packer"? Perhaps by using this study as a relative indicator, the

inferences generated can be more properly utilized.

APPENDICES

APPENDIX A

126

 

THESIS RESEARCH QUESTIONNAIRE
1993 TAX YEAR
MICHIGAN STATE UNIVERSITY

 

Enter Code:

 

Please complete the questionnaire and return it in the enclosed envelope, postage is
not required. If you need any assistance in completing the questionnaire, please
contact Mary or Diane of the Agricultural Education and Extension Department at
Michigan State University - (517) 355-6580. Thank you.

 

 

 

1. WW
Instructions: Please circle or fill in all appropriate information in each
section.

1. How would you rank the importance of your swine enterprise in regards to the
total gross income of your farm in 1993?
1. First
2. Second
3. Third
4. Other *
* Please identify "Other".

2. My (our) Farm Business Organization is a:
1. Sole Proprietorship
2. Spousal Partnership
3. Family Partnership
4. Family Corporation
5. Non Family Corporation
6. Limited Liability Company
7. Other *
* Please identify "Other".

3. How many tillable acres did you crop in 1993? acres

127

4. Are you a member of a production alliance or producer network?
1. Yes 2. No

11. MW
1. How many hogs in total, did you market in 1993?

 

2. What percent of your market hogs were sold using the following options in
1993?

1. Direct to Packer (e.g. direct to Thorn Apple Valley) ....................................................... _ %
2. Packer Buying Station (e.g. IBP) ............................................................................... _ %
3. Michigan Livestock Exchange-Yard ............................................................................. _ %
4. Independent Assembly (e.g.BrokerfI‘rucker/Auction) ....................................................... _ %
5. Michigan Livestock Exchange - Direct (Farm Fresh) ..................................................... _ %

3. How many of these marketing options have you used to sell the majority of
your hogs in the last 5 years?

4. How important were the factors below in determining the type of marketing
option that you chose (1 being most important, and 5 being least important)?
Please circle your choice.

most least
important important

1. Tradition ......................................................................................... l 2 3 4 5
2. Price received ................................................................................... l 2 3 4 5
3. Ease of use (less effort involved) ......................................................... 1 2 3 4 5
4. Quality of hog required by the purchaser ............................................... 1 2 3 4 5
5 . Location of your farm ....................................................................... 1 2 3 4 5
6. Location of the buyer (distance) ........................................................... 1 2 3 4 5
7. Weight of hogs marketed ................................................................... 1 2 3 4 5
8. Costs (transportation, insurance, commission) ....................................... l 2 3 4 5
9. Premiums (yield, percent lean) ........................................................... 1 2 3 4 5
10. Kill Sheets (carcass information) ......................................................... l 2 3 4 S
11. Payment basis (live weight vs dressed weight) ....................................... 1 2 3 4 5
12. Sex of hog marketed (gilt vs barrow) ................................................... l 2 3 4 5
13. Personal marketing skills ................................................................... 1 2 3 4 5
14. Other * ........................................................... l 2 3 4 5

 

15. *Pleaseidentify "Other".

 

5. What percent of your sales using . - A ' .
marketing go through the following? If this does not pertain to you, go to
question 6.

1. Trucker/broker ................................................................................................... _ %
2. Private auction yard ........................................................................................... %

128

6. If your marketing option involves dealing with a packer, please indicate the
degree of influence that each of the following had on your choice of that
packer (1 being most important, and 5 being least important) Please circle
your choice. If this does not pertain to you go to question 7.

most least
important important

 

 

1. Price received ....................................................................................... 1 2 3 4 5
2. Location of packer ................................................................................. 1 2 3 4 5
3. Quality of hog required ........................................................................... l 2 3 4 5
4. Packer's reputation ................................................................................. 1 2 3 4 5
5. Carcass information returned by packer ..................................................... l 2 3 4 5
6. Ability to trust packer (e. g. accurate grading) ............................................. 1 2 3 4 5
7. Quality of service by the packer ............................................................... l 2 3 4 5
8. Other ......................................................... 1 2 3 4 5
* Please identify "Other" .
7. a) For your primary option* of marketing hogs, which packer purchased the
majority of your hogs in 1993, and how many were purchased?
Packer
Number Purchased

 

b) If you sold to more than one packer using your primary marketing option,
which packer purchased the second largest number of your hogs in 1993,
and how many were purchased?

Packer
Number Purchased

 

 

* The primary option of marketing hogs is the marketing option by which you
sell the majority of your hogs.

8. Complete only if you used more than 1 marketing option in 1993. If this

does not pertain to you go to page 4.

a) If you used more than one option of marketing hogs in 1993, please state
the option which sold the second largest number of your hogs, the packer
who bought them, and the number purchased.

Marketing Option
Packer
Number Purchased

 

 

 

 

b) If you sold hogs to more than one packer In 1993, using the marketing
option above (8a), which packer purchased the second largest number of
your hogs, and how many were purchased?

Packer .
Number Purchased

 

 

129

mMarketinaRmnmnflrtsts

Please complete the following chart based on the primarlquion used to

market your hogs, & the packer who purchased the majority of your hogs in

1223 (both identified in question 7(a) on pg. 3.

* Using the average values for 1993, separately enter the marketing data for
hogs sold on a live weight and grade and yield basis.

* Please fill in individual values for premiums, discounts, carcass quality and
marketing costs if known.

 

 

 

 

 

 

 

 

 

 

 

 

W w
Number of Hogs Marketed Using Number of Hogs Marketed Using
This Option This Option
Live Weight (lbs) Live Weight (lbs)
Live Value (net per hog) m: Carcass Weight (lbs)
Total Market Hog Revenue
(for this option) S Revenue (net per hog) or
Total Market Hog Revenue
murmur (per hog) $= (for this Option) 3
Individual Premiums (per hog):
1. S __ CarcasaQualitx individual Measurements:
2. S Dressing (Yield) %
Fat Measurement
Disgountsflfgmh (per hog) S Loin Eye Measurement
Individual Discounts (per hog): Percent Lean
1. Weight Discount
2. S__ WM!) (per hog)$=
Individual Premiums (per hog):
WW 1- Lean Yield Premium _—
(perhog) 2. S ._
Individual Marketing Costs (per hog):
1. Tmportation S___ WI) (Per h0813=
2. Commission 8 Individual Discounts (per hog):
3. S 1. Weight Discount S
2. S __
W $—
(Per hos)

Individual Marketing Costs (per hog):
1. Transportation
2. Commission
3.

WWW

 

III-WWW

COMPLETE ONLY IF YOU ANSWERED QUESTION 7 (b) or 8(a) on page 3. If
you completed mt]; use whichever sold the most hogs in 1993.
* Using the average values for 1993, separately enter the marketing data for hogs sold on

a live weight and grade and yield basis.

* Please fill in individual values for premiums, discounts, carcass quality and marketing

costs if known.

WEE]:

Number of Hogs Marketed Using
This Option

 

Live Weight (lbs)

Live Value (net per hog) Q]:
Total Market Hog Revenue

 

(for this option) S
maturation!) (per hog) S=___=
Individual Premiums (per hog):

1. _—
2. S _ _

 

Dissauatsflatall (per hog) S==
Individual Discounts (per hog):
1. Weight Discount

 

2. S ._
WW

(Per 1108)

Individual Marketing Costs (per hog):

1. Transportation S

2. Commission $—
3. S __

 

W

Number of Hogs Marketed Using
This Option

 

Live Weight (lbs)

Carcass Weight (lbs)

Revenue (net per hog) 91:
Total Market Hog Revenue

(for this option) $==
WI! Individual Measurements:

 

Dressing (Yield) %

Fat Measurement

Loin Eye Measurement
Percent Lean

Premiums [Iota]! (per hog)$ ,
Individual Premiums (per hog):
1. Lean Yield Premium

 

 

 

2. S __
W (per hog)$
Individual Discounts (per hog):

1. Weight Discount 3

2. S ._
W S 1
(Per hog)

Individual Marketing Costs (per hog):
1. Transportation
2. Commission
3.

S__
$___

 

131

[v.11 ! |' El l 'I‘

1. How often do you sell your market hogs?
Weekly

Once every 2 weeks

Once every 3 weeks

Monthly

Other *

* Please identify "Other".

5":“9’1‘5‘2‘

2. What is the distance to the closest:

l. Packer? ........................................................................................................... _ miles
2. MLE Yard? ....................................................................................................... _ miles
3. Independent Assembler (Trucker/Broker/Auction)? ................................................... _ miles
4. Packer Buying Station? ....................................................................................... _ miles

3. How important are the following factors to the price you receive?
Please circle your choice (1 being most important, 5 being least important).
most least
important important

 

1. Timeliness and stability of hog deliveries (when delivered,

 

ability to deliver similar numbers at similar times) ......................................... l 2 3 4 5
2. Consistency of carcass quality ................................................................... 1 2 3 4 5
4. What percent of your hogs are sold using these price risk management tools?
1. Hedging - using futures or options ............................................................................. _%
2. Forward Contracting ................................................................................................. _%
3. Other * ......................................................................... _%
4. None ..................................................................................................................... _%
* Please identify "Other".
V. Marketinalnfarmatiau

l . Please rank mix the 4 most important sources of market (pricing) information to you
(Rank them I through 4, 1 being most important).

 

1 . Satellite receivers (DTN, Pioneer) ................................................................................... __
2. USDA reports ............................................................................................................. __
3. Land Grant Universities (Mich. State, Ohio State etc...) ....................................................... _
4. Market advisory services ................................................................................................. __
5. Futures brokerage services ............................................................................................. _
6. Local radio station ......................................................................................................... _
7. Local newspaper ........................................................................................................... __
8. Neighbours ................................................................................................................. _
9. Personnel of your primary marketing method ..................................................................... _
10. Personnel of another marketing method (specify) ................................. _
1 1. Other ............................................................................... _

 

* Please identify "Other" .

132

2. For each marketing method, please rank only the top two sources of
information you use in evaluating them (Rank them 1 & 2, 1 being the most
important).

* Please check the "I have received no information" box (bottom of page) if
you have not received any information on that marketing method.

MARKETING METHOD ,

 

INFORMATION SOURCES ' , l. ' . l “ 3. , , 4..
3 Direct Michigan Independent

to Livestock - Assembly .
Packer Exchange - trucker -‘
. , ‘ ' . broker
- auction.

 

 

 

word of Mouth (other producers,
Ifindustry personnel) '

Ila. ..
Personnel of the Marketing Method

Advertising (brochure, newsletter)

 

 

 

Market AdVisOry ServiCes

 

Futures Brokerage Services

 

Media (radio, newspaper, television)

 

Extension Meetings or Personnel

1r ’ _ .
Past Experiences

 

 

Other”* 1
, other *

_l have received no informatiOn

 

 

 

 

 

 

 

* Please identify ”Other"

133

3. For each marketing method, independently score the criteria listed below,
with 1 being the highest score, and 3 being the lowest score. Please circle a
choice for each non shaded box.

MARKETING METHOD '

l. . 3. 4.

  

SCORING

 

CRITERIA

 

Direct to
Packer

Independent
Assembly

- trucker

- broker

- auction.

Michigan
Livestock
Exchange

 

Price Received

1 2 3
No Opinion

1 2 3
No Opinion

1 2 3
No Opinion

1 2 3
No Opinion

 

 

 

 

 

 

 

Required

No Opinion

No Opinion

No Opinion

Costtothe 123 123 123 123
Producer No Opinion No Opinion No Opinion No Opinion

Convenience of Use 1 2 3 1 2 3 l 2 3 1 2 3
, No Opinion No Opinion No Opinion No Opinion

Carcass] Grading 1 2_ 3 1 2_ 3 1 2_ 3 l 2. _3
Information No Oplnlon No Oprmon No Oprmon No Oprmon

Availability

Availability for 1 2 3 1 2 3 l 2 3 1 2 3 ~
Consultation No Opinion No Opinion No Opinion No Opinion

Confidentiality l 2 3 1 2 3 l 2 3 1 2' 3
. No Opinion No Opinion No Opinion No Opinion

Trustworthiness 123 123, 123 123
No Opinion No Opinion No Opinion No Opinion

QualityofHog l 2 3 1 2 3 1 2 3 1 2 3

No Opinion

 

 

 

Other* .

1 2 3
No 0 inion

 

 

 

 

  

* Please identify ” Other ”.

V. Production Characteristics

1. What was your average sow herd size in 1993? sows
2. What percent of your breeding stock came from the following sources in 1993?
Boars Gilts
Independent Purebred/Fl suppliers ................................................................. _ % _ %
Corporate Suppliers (eg. Dekalb, PIC.,NPD.) ................................................. __ % _ %
Other Commercial Producers (like yourself) ................................................... _ % __ %
Your Own Herd ......................................................................................... % %

“9’3"?

100% 100%

134

3. Management Factors Yes N o
Are all market hogs weighed before shipping? ...........................................................
Do you practice split-sex feeding for market hogs? .....................................................
Is Artificial Insemination used? ............................................................................... _ _
Does the packer coordinate your fwding program? .....................................................

Do you operate your barns on an all in/all out basis? .................................................
Are your farrowing, weaner, and finishing barns at separate locations? ...........................

9“”.“9’19!”

VII. Demogmphic Chamcteristics
Please circle your choice.
1. To which age category below does the Major/First Decision Maker* belong:
1. (20 - 35)
2. (36 - 45)
3. (46 - 55)
4. (55 & over)

* The person who is primarily responsible for the majority of management decisions in the areas of
finance, production, marketing.

2. What is the highest level of education achieved by the Major/First Decision
Maker*
1. Less than High School
2. High School

3. College (2 years)

4. University (4 years)

5. University Graduate School

VIII. Financial Chanacteristics
Please circle your choice.
1. Which category best represents the Fair Market Value* of your assets at the
end of 1993:
1. Less than $500,000
2. $500,000 to $1,000,000
3. Over $1,000,000

Fair market value is the value you could reasonably expect for your assets if you sold them at a specified
time, for example Dec. 31, 1993.

2. Which category best represents your net farm income in 1993:
1. Less than $25,000
2. $25,000 to $50,000
3. $50,000 to $75,000
4. $75,000 to $100,000
5. Over $100,000

THANK YOU FOR PARTICIPATING IN THIS STUDY. YOUR CO-
OPERATION IS GREATLY APPRECIATED.

APPENDIX B

135

Table 32 The Relative Ranking of Marketing Factors in Determining the

Option Chosen, by Primary Marketing Option

 

1 represents most important and 5 represents least important.

 

111 Mean Std De
Direct to Packer Option -
Tradition 12 4.75 0.60
Price received 12 1.08 0.28
Ease of use (less effort involved) 12 2.83 1.21
Quality of hog required by buyer 12 2.08 1.04
Location of your farm 12 3.00 1.41
Location of the buyer (distance) 12 2.25 0.83
Weight of hogs marketed 11 2.73 0.96
Costs (trans.,comm.,ins.) 11 2.00 0.85
Premiums (yield, percent lean) 12 1.75 0.83
Kill Sheets (carcass info.) 12 1.50 0.65
Payment basis (live vs dressed) 12 2.50 1.12
Sex of hog sold (gilt/barrow) 11 3.00 1.35
Personal marketing skills 11 2.73 0.96
Other - Group marketing 1 1.00 0.00
Packer Buying Station Option
Tradition 6 4. 17 1.21
Price received 6 1.33 0.47
Ease of use (less effort involved) 6 2.17 1.34
Quality of hog required by buyer 6 3.50 1.26
Location of your farm 6 2.67 1.25
Location of the buyer (distance) 6 1.50 0.50
Weight of hogs marketed 6 2.83 1.34
Costs (trans.,comm.,ins.) 6 3.50 1.50
Premiums (yield, percent lean) 6 2.83 1.07
Kill Sheets (carcass info.) 6 2.67 1.25
Payment basis (live vs dressed) 6 3.83 1.07
Sex of hog sold (gilt/barrow) 6 4.33 0.75
Personal marketing skills 6 4.17 0.69
Michigan Livestock Exchange-Yard Option
Tradition 7 2 3 .07 1 .63
Price received 72 1.56 0.83
Ease of use (less effort involved) 72 1.89 1.11
Quality of hog required by buyer 72 2.11 1.23
Location of your farm 72 2.35 1.54

135

Table 32

Option Chosen, by Primary Marketing Option

The Relative Ranking of Marketing Factors in Determining the

 

1 represents most important and 5 represents least important.

N

Direct to Packer Option
Tradition
Price received
Ease of use (less effort involved)
Quality of hog required by buyer
Location of your farm
Location of the buyer (distance)
Weight of hogs marketed
Costs (trans.,comm.,ins.)
Premiums (yield, percent lean)
Kill Sheets (carcass info.)
Payment basis (live vs dressed)
Sex of hog sold (gilt/barrow)
Personal marketing skills
Other - Group marketing

Packer Buying Station Option
Tradition
Price received
Ease of use (less effort involved)
Quality of hog required by buyer
Location of your farm
Location of the buyer (distance)
Weight of hogs marketed
Costs (trans.,comm.,ins.)
Premiums (yield, percent lean)
Kill Sheets (carcass info.)
Payment basis (live vs dressed)
Sex of hog sold (gilt/barrow)
Personal marketing skills

Michigan Livestock Exchange-Yard Option
Tradition
Price received
Ease of use (less effort involved)
Quality of hog required by buyer
Location of your farm

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4.75
1.08
2.83
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2.25
2.73
2.00
1.75
1.50
2.50
3.00
2.73
1.00

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136

Table 32 (cont'd)

1 represents most important and 5 represents least important.

N Mean Std Dev
Location of the buyer (distance) 72 2.10 1.34
Weight of hogs marketed 72 2.25 1.28
Costs (trans.,comm.,ins.) 72 2.21 1.29
Premiums (yield, percent lean) 72 2.36 1.54
Kill Sheets (carcass info.) 72 2.88 1.70
Payment basis (live vs dressed) 72 2.83 1.57
Sex of hog sold (gilt/barrow) 72 3.68 1.49
Personal marketing skills 72 2.82 1.51
Other -Feeder program/group mrktg 3 2.33 1.25
Independent Assembly-Trucker/Broker Option
Tradition 11 4.00 1.48
Price received 11 1.36 0.64
Ease of use (less effort involved) 11 2.18 0.94
Quality of hog required by buyer 11 1.82 0.39
Location of your farm 11 3.91 1.16
Location of the buyer (distance) 11 2.82 1.19
Weight of hogs marketed 11 2.82 1.34
Costs (trans.,comm.,ins.) 11 2.00 0.95
Premiums (yield, percent lean) 11 2.36 1.37
Kill Sheets (carcass info.) 11 2.36 1.37
Payment basis (live vs dressed) 11 3.55 1.31
Sex of hog sold (gilt/barrow) 11 3.82 1.19
Personal marketing skills 11 3.45 0.78
Other - Farm buyers 1 1.00 0.00
Independent Assembly-Auction Option
Tradition 7 3.14 1.12
Price received 8 1.25 0.43
Ease of use (less effort involved) 7 1.71 0.70
Quality of hog required by buyer 8 2.38 1.41
Location of your farm 8 2.13 1.05
Location of the buyer (distance) 8 2.13 0.78
Weight of hogs marketed 8 2.50 0.87
Costs (trans.,comm.,ins.) 8 2.00 0.87
Premiums (yield, percent lean) 7 4.00 0.93
Kill Sheets (carcass info.) 7 3.86 1.13
Payment basis (live vs dressed) 7 4.29 0.88

Table 32 (cont'd)

137

1 represents most important and 5 represents least important.

Sex of hog sold (gilt/barrow)
Personal marketing skills

N

8
8

Michigan Livestock Exchange-Direct Option

Tradition

Price received

Ease of use (less effort involved)
Quality of hog required by buyer
Location of your farm

Location of the buyer (distance)
Weight of hogs marketed

Costs (trans.,comm.,ins.)
Premiums (yield, percent lean)
Kill Sheets (carcass info.)
Payment basis (live vs dressed)
Sex of hog sold (gilt/barrow)
Personal marketing skills

12
12
12
12
12
12
12
12
12
12
12
12
12

Mean

3.75
3.50

PPPPHPPPPPPEP
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Nomwwoofloooooqoo

 

 

APPENDIX C

Table 33

138

Associated With Each Marketing Option

Premiums, Discounts and Costs Per Hundred Weight (Live)

 

 

Variables

     
     

 

 

 

 

 

 

 

 

 

 

 

 

Average premium $2.43 NA $0.55 $2.44 $1.86

per cwt (N=11) (N=6) (N=4) (N=6)

Premium range $1.31 - NA $0.25 - $2.13 - $0.58 -

per cwt $3.98 $1.28 $2.89 $3.48
(N=1 1) (N=6) (N=4) (N=6)

Average discounts $0.12 NA $0.23 $0.20

per cwt (N=3) (N=4) (N=1)

Average costs (*) $1.18 NA $0.27 $1.24 $1.06 $0.57

per cwt (N=15) (N=57) (N=7) (N=5) (N=10)

Cost (*) range per $0.49 - NA $0.04 — $0.65 - $0.41 - $0.07 -

cwt $1.63 $1.65 $1.75 $1.24 $1.45
(N=15) (N=57) (N=7) (N=5) (N=10)

Total Cost Per $3.23 NA NA $3.37 $2.88 NA

‘ Hogilfll‘

 

(N) Denotes the number of respondents. Multiple responses were possible depending on the number of
buyers within the primary marketing options (eg, more than one packer).

(.) Denotes no responses.

(cwt) Hundred Weght.

(*) The costs do nqt include the checkoff rate of 0.0035 percent of the hog's value ($0.35 per $100 of
market value). They include all charges which are specific to each marketing option and

pertain to

the delivery and exchange of hogs between the respondent and the second party.

Cost such as commissions, transit insurance, swine identification, and transportation to the packer

where known.

(**) Total individual option cost = average live weight x average costs + the checkoff amount.
(NA) Producers were not aware of the exact amount of these variables, as their payments showed only a
net value. Hence the charges incurred in the delivery and exchange of hogs between the respondent

and the second party, and between the second party and third party cannot be calculated.

Grp l = Direct to Packer Option.
Grp 2 = Packer Buying Station Option.

Grp 3 = Mich. Liv. Exch. - Yard Option.

Grp 4 = Ind. Assembly - Trucker/Broker Option.
Grp 5 = Ind. Assembly - Auction Option.
Grp 6 = Mich. Liv. Exch. - Direct Option.

 

APPENDIX D

139

Table 34 The Importance of Selected Factors in Determining the Packer
Chosen, by Relevant Marketing Option

 

1 represents most important and 5 least important.

N Mean $1113.61
Direct to Packer Option
Price received 12 1.08 0.28
Location of the packer 12 2.75 0.72
Quality of hog required 12 2.25 0.83
Packer's reputation 12 1.92 0.19
Carcass information 12 1.83 0.80
Ability to trust packer 12 1.67 0.75
Quality of service by packer 12 2.42 1.04

Independent Assembly-Trucker/Broker Option

Price received 3 1.00 0.00
Location of the packer 3 2.67 0.47
Quality of hog required 3 1.67 1.94
Packer's reputation 3 3.33 0.70
Carcass information 3 1.67 0.94
Ability to trust packer 3 2.00 1.82
Quality of service by packer 3 3.00 1.63
Michigan Livestock Exchange-Direct Option
Price received 5 1.00 0.00
Location of the packer 5 2.00 0.89
Quality of hog required 5 1.20 0.40
Packer's reputation 5 2.00 0.89
Carcass information 5 1.60 0.49
Ability to trust packer 5 1.00 0.00
Quality of service by packer 5 1.60 1.80
Other - Light hogs (limited space) 1 1.00 0.00

 

APPENDIX E

140

Table 35 Significant Differences in the Net Price Received, Means for Each
Marketing Option (Detailed Analysis)

 

The Oneway Analysis of Variance and associated Post-Hoc Tukey Test was used
to identify the significant differences in the means of the net prices received for
each marketing option. Marketing options with significantly different net prices
at the .050 level are denoted with the symbol (*).

 

Cropp Copnt §tandfld Standard Standard 25% Confidenca

Mean Deviation Error Interval For Mean
Grp 1 11 47.81 1.64 .50 46.70 To 48.91
Grp 2 5 43.81 2.48 1.11 40.72 To 46.89
Grp 3 53 44.41 2.90 .40 43.61 To 45.21
Grp 4 10 46.14 1.05 .33 45.38 To 46.89
Grp 5 7 43.15 1.76 .66 41.53 To 44.78
Grp 6 11 45.66 2.28 .69 44.13 To 47.20

Description Minimum Price Maximum Price
Grp 1 Direct to Packer 45.00 50.25
Grp 2 Packer Buying Station 40.82 47.00
Grp 3 Mich. Liv. Exch. - Yard 40.00 61.63
Grp 4 Ind. Assembly - Trucker/Broker 44.22 47.50
Grp 5 Ind. Assembly - Auction 40.60 45.33
Analysis of Variance
Degrees pf Sum of Mean E E

Source Freedom uares ares Ratio Prob,
Between Groups 5 153.7635 30.7527 4.9068 .0005
Within Groups 91 570.3348 6.2674
Total 96 724.0984
GroqurpS Grp 2 Grp 3 Grp6 Grp4 Grpl
Grp 5
Grp 2
Grp 3
Grp 6
Grp 4

Grpl at: at: at:

(*) Denotes pairs of groups significantly different at the .050 level.

 

141

 

Table 36 Regression Analysis Measuring Parameters Influencing Net Price
Received - 1 (Detailed Analysis)
Multiple R .62395
R Square .3893]
Adjusted R Square .3716]
Standard Error 1.70724
Analysis of Variance
DE W M uar
Regression 2 128.20851 64.10425
Residual 69 201.11189 2.91467
F = 21.99369 Significant F = .0000
Variables in the Equation
2am _B_ SE B Bata I SILT
SOLDDTP .037027 .007176 .497018 5.160 .0000
PRODASST .775049 .261717 .285260 2.961 .0042
(Constant) 43.295076 .464966 93.1 15 .0000
Variables not in the Equation
Yan’ame Beta In Partial Minuet I Sal
HOGMKTGS .144050 .135626 .541350 1.129 .2629
SOLDMLEY -.050827 -.059489 .831828 -.491 .6247
METHUSED .126134 .141777 .771565 1.181 .2417
AVSOWSIZ .059663 .066466 .757889 .549 .5846
SOLDDTP = Percentage of hogs sold Direct to the Packer.
PRODASST = Value of respondents' farm assets.
HOGMK'TGS = Hog marketings in 1993.
SOLDMLEY = Percentage of hogs sold through the Michigan Livestock
Exchange-Yard.
METHUSED = Number of options primarily used in the last five years.
AVSOWSIZ = Average sow herd size in 1993.

 

142

Table 37 Regression Analysis Measuring Parameters Influencing Net Price
Received - 2 (Detailed Analysis)

 

Multiple R .39373
R Square .15502
Adjusted R Square .12776
Standard Error 2.56496

Analysis of Variance

DE Mm Manicure
Regression 3 112.25118 37.41706
Residual 93 61 1.84720 6.57900

F = 5.68735 Significant F = .0013

Variables in the Equation
Variable _B_ SE B Beta I Sig T
OPTIONS -2.324286 .823885 -.330716 -2.821 .0059
OPTION2 -3.204952 1.276357 -.259368 -2.511 .0138
OPTION3 -2.600764 .661376 -.473 893 -3.932 .0002
(Constant) 47.010952 .559719 83.990 .0000

Variables not in the Equation

Eatiabie Beta In PM Min flfoler I Sig T
OPTION4 -.185903 -.154553 .378906 -1.500 .1369

The following variables are constants or have missing correlations:
OPTION6

OPTION2 = Packer Buying Stations.

OPTION3 = Michigan Livestock Exchange-Yard.
OPTION4 = Independent Assembly-Trucker/Broker.
OPTIONS = Independent Assembly-Auction.
OPTION6 = Michigan Livestock Exchange-Direct.

 

143

 

Table 38 Regression Analysis Measuring Parameters Influencing Net Price
Received - 3 (Detailed Analysis)
Multiple R .77523
R Square .60099
Adjusted R Square .54950
Standard Error 1.42570
Analysis of Variance
DE Sum of Squares Mean Square
Regression 8 189.81286 23.72661
Residual 62 126.02206 2.03261

F = 11.67295 Significant F = .0000

Variables in the Equation

Variable _B_ SE B BEE I S'g T

OPTIONS -2.092870 .768800 -.228797 -2.722 .0084
SELL4 -1.581299 .581745 -.223508 -2.718 .0085
SELL3 -2.227662 1.046523 -. 174755 -2.129 .0373
OPTION6 -1.671183 .579649 -.263622 -2.883 .0054
PACKERS 2.666009 .799800 .291454 3.333 .0015
PACKER6 2.964838 .766197 .324122 3.870 .0003
PACKER2 2.572929 .442285 .530692 5.817 .0000
PRODASST .619368 .242640 .232432 2.553 .0132
(Constant) 43.478926 .413275 105.206 .0000

Variables not in the Equation

MagaLle Beg In Partial Min Toler I Sig T

HOGMKTGS -.008396 -.008776 .435958 -.069 .9456
GTPUREFl .113927 .170562 .755245 1.352 .1814
BASISZ .210803 .222270 .443603 1.781 .0800
OPTION2 .080410 .105326 .684605 .827 .4113
OPTION3 -. 133184 —. 138560 .431871 -l.093 .2788
OPTION4 -.071835 -.101472 .647328 -.797 .4288
SELL2 -.068716 -. 100790 .7481 13 -.791 .4319
SELLS -.038815 -.057816 .745665 -.452 .6526

 

APPENDIX F

145

Table 39 Scoring of Selected Criteria, by Primary Marketing Option

 

Respondents Primarily Using - Direct to Packer Option

Price received - Direct to Packer (N=11)

Price received - Packer Buying Station (N=7)

Price received - Michigan Livestock Exchange (N=9)
Price received - Independent Assembly (N=6) -

Cost to the producer - Direct to Packer (N=10)

Cost to the producer - Packer Buying Stations (N=7)
Cost to the producer - Mich. Livestock Exchange (N=8)
Cost to the producer - Independent Assembly (N=6)

Convenience of use - Direct to Packer (N=10)
Convenience of use - Packer Buying Stations (N=7)
Convenience of use - Mich. Livestock Exchange (N=10)
Convenience of use - Independent Assembly (N=6)

Carcass info availability - Direct to Packer (N=11)
Carcass info availability - Packer Buy. Stns (N=7)
Carcass info availability - Mich. Liv. Exch. (N=9)
Carcass info availability - Ind. Assembly (N=6)

Availability for consultation - Direct to Packer (N=10)
Availability for consultation - Packer Buy. Stns. (N=8)
Availability for consultation - Mich. Liv. Exch. (N=10)
Availability for consultation - Ind. Assembly (N=6)

Confidentiality — Direct to Packer (N=10)
Confidentiality - Packer Buying Stations(N=8)
Confidentiality - Michigan Livestock Exchange (N=9)
Confidentiality - Independent Assembly (N=6)

Trustworthiness - Direct to Packer (N=10)
Trustworthiness - Packer Buying Stations (N=8)
Trustworthiness - Michigan Livestock Exchange (N=10)
Trustworthiness - Independent Assembly (N=6)

Quality of hog required - Direct to Packer (N=11)
Quality of hog required - Packer Buying Stations (N=8)
Quality of hog required - Mich. Liv. Exch. (N=10)
Quality of hog required - Independent Assembly (N=5)

Rank Mean
1 1.09
2 1.29
3 1.89
4 2.33
1 1.40
2 1.71
3 2.13
4 2.17
3 2.00
2 1.86
1 1.80
3 2.00
1 1.09
2 1.71
4 2.22
3 2.17
2 2.20
3 2.50
1 1.70
4 2.83
1 1.60
2 1.75
3 2.00
4 2.33
1 1.60
2 1.75
3 0.80
4 2.33
1 1.45
2 2.00
4 2.50
3 2.40

Std
1231

0.29
0.45
0.87
0.94

0.66
0.70
0.78
0.90

0.63

0.87
0.58

0.29
0.88
0.92
0.90

0.60
0.71
0.78
0.37

0.66
0.66
0.82
0.75

0.66
0.83
0.87
0.94

0.66
0.71
0.67
0.80

146

Table 39 (cont'd)

Respondents Primarily Using - Packer Buying Station Option

Mean Std

Dex
Price received - Direct to Packer (N=1) 4 3.00 0.00
Price received - Packer Buying Stations(N=6) 1 1.67 0.75
Price received - Michigan Livestock Exchange (N=4) 2 1.75 0.83
Price received - Independent Assembly (N=2) 3 2.00 1.00
Cost to the producer - Direct to Packer (N=0) . . .
Cost to the producer - Packer Buying Stations (N=3) 1 1.00 0.00
Cost to the producer - Mich. Livestock Exchange (N=1) 1 1.00 0.00
Cost to the producer - Independent Assembly (N=1) 1 1.00 0.00
Convenience of use - Direct to Packer (N=1) 3 3.00 0.00
Convenience of use - Packer Buying Stations (N=5) 2 1.20 0.40
Convenience of use - Mich. Livestock Exchange (N=2) 1 1.00 0.00
Convenience of use - Independent Assembly (N=2) 1 1.00 0.00
Carcass info availability - Direct to Packer (N=1) 3 3.00 0.00
Carcass info availability - Packer Buy. Stns (N=5) 1 1.80 0.75
Carcass info availability - Mich. Liv. Exch. (N=3) 2 2.67 0.47
Carcass info availability - Ind. Assembly (N=2) 3 3.00 0.00
Availability for consultation - Direct to Packer (N=1) 2 3.00 0.00
Availability for consultation - Packer Buy. Stns (N=4) 1 2.00 1.00
Availability for consultation - Mich. Liv. Exch. (N =2) 2 3.00 0.00
Availability for consultation - Ind. Assembly (N=2) 2 3.00 0.00
Confidentiality - Direct to Packer (N=0) . .
Confidentiality - Packer Buying Stations (N=3) 1 1.33 0.47
Confidentiality - Michigan Livestock Exchange (N=1) 2 3.00 0.00
Confidentiality - Independent Assembly (N=1) 2 3.00 0.00
Trustworthiness - Direct to Packer (N=1) 3 3.00 0.00
Trustworthiness - Packer Buying Stations (N=4) 1 1.50 0.87
Trustworthiness - Michigan Livestock Exchange (N=2) 2 2.00 1.00
Trustworthiness - Independent Assembly (N=2) 2 2.00 1.00
Quality of hog required - Direct to Packer (N=1) 2 2.00 0.00
Quality of hog required - Packer Buying Stations (N=4) 1 1.75 0.43
Quality of hog required - Mich. Liv. Exch. (N=2) 2 2.00 0.00
Quality of hog required - Independent Assembly (N=2) 3 2.50 0.50

147

Table 39 (cont'd)

Respondents Primarily Using - Michigan Livestock Exchchange-Yard Option

Price received - Direct to Packer (N=14)

Price received - Packer Buying Stations (N=15)

Price received - Michigan Livestock Exchange (N=65)
Price received - Independent Assembly (N =4)

Cost to the producer - Direct to Packer (N=14)

Cost to the producer - Packer Buying Stations (N=15)
Cost to the producer - Mich. Livestock Exchange (N=58)
Cost to the producer - Independent Assembly (N=12)

Convenience of use - Direct to Packer (N=12)
Convenience of use - Packer Buying Stations (N=15)
Convenience of use - Mich. Livestock Exchange (N=64)
Convenience of use - Independent Assembly (N=12)

Carcass info availability - Direct to Packer (N=13)
Carcass info availability - Packer Buy. Stns. (N=15)
Carcass info availability - Mich. Liv. Exch. (N=46)
Carcass info availability - Ind. Assembly (N=10)

Availability for consultation - Direct to Packer (N=11)
Availability for consultation - Packer Buy. Stns. (N=15)
Availability for consultation - Mich. Liv. Exch. (N=57)
Availability for consultation - Ind. Assembly (N=12)

Confidentiality - Direct to Packer (N=13)
Confidentiality - Packer Buying Stations (N=15)
Confidentiality - Michigan Livestock Exchange (N=57)
Confidentiality - Independent Assembly (N=12)

Trustworthiness - Direct to Packer (N=13)
Trustworthiness - Packer Buying Stations (N=15)
Trustworthiness - Michigan Livestock Exchange (N=63)
Trustworthiness - Independent Assembly (N=13)

Quality of hog required - Direct to Packer (N=14)
Quality of hog required - Packer Buying Stations (N=16)
Quality of hog required - Mich. Liv. Exch. (N=60)
Quality of hog required - Independent Assembly (N=4)
Other (unidentified) - Michigan Livestock Exchange

ht—UJN N-fiv-tw NAth—t

MhNH

#t-‘NUJ #NW"

WhNH

HhWNv-d

Rankh/Iean

Std

Dex
0.00

0.40
0.57
0.39

0.50
0.61
0.62
0.64

0.49
0.62
0.52
0.64

0.42
0.72
0.79
0.89

0.75
0.83
0.71
0.80

0.95
0.85
0.77
0.72

0.27
0.40
0.51
0.58

0.26
0.58
0.65
0.58
0.00

148
Table 39 (cont'd)

Respondents Primarily Using - Independent Assembly-Trucker/Broker Option

Price received - Direct to Packer (Nfl)

Price received - Packer Buying Stations (N=3)

Price received - Michigan Livestock Exchange (N=3)
Price received - Independent Assembly (N=9)

Cost to the producer - Direct to Packer (N=4)

Cost to the producer - Packer Buying Stations (N=3)
Cost to the producer - Mich. Livestock Exchange (N=4)
Cost to the producer - Independent Assembly (N=9)

Convenience of use - Direct to Packer (N=4)
Convenience of use - Packer Buying Stations (N=3)
Convenience of use - Mich. Livestock Exchange (N=4)
Convenience of use - Independent Assembly (N=9)

Carcass info availability - Direct to Packer (N=4)
Carcass info availability - Packer Buy. Stns. (N=3)
Carcass info availability - Mich. Liv. Exch. (N=4)
Carcass info availability - Ind. Assembly (N=9)

Availability for consultation - Direct to Packer (N=4)
Availability for consultation - Packer Buy. Stns. (N=3)
Availability for consultation - Mich. Liv. Exch. (N=2)
Availability for consultation - Ind. Assembly (N=8)

Confidentiality - Direct to Packer (N=3)
Confidentiality - Packer Buying Stations (N=3)
Confidentiality - Michigan Livestock Exchange (N=3)
Confidentiality - Independent Assembly (N=8)

Trustworthiness - Direct to Packer (N=4)
Trustworthiness - Packer Buying Stations (N=3)
Trustworthiness - Michigan Livestock Exchange (N=4)
Trustworthiness - Independent Assembly (N=9)

Quality of hog required - Direct to Packer (N =4)
Quality of hog required - Packer Buying Stations (N=3)
Quality of hog required - Mich. Liv. Exch. (N=4)
Quality of hog required - Independent Assembly (N=9)

Rank Mean
1 1.00
l 1.00
1 1.00
2 1.11
1 1.25
2 1.33
3 1.50
2 1.33
2 1.50
3 1.67
1 1.00
1 1.00
2 1.25
1 1.00
4 1.75
3 1.57
3 1.75
1 1.33
2 1.50
3 1.75
1 1.33
1 1.33
2 1.67
3 2.13
3 1.25
1 1.00
l 1.00
2 1.22
2 1.25
1 1.00
4 2.25
3 1.67

0.43

0.83
0.67

149

Table 39 (cont'd)
Respondents Primarily Using - Independent Assembly-Auction Option
Rank Mean
Price received - Direct to Packer (N=1) 1 1.00
Price received - Packer Buying Stations (N=1) 1 1.00
Price received - Michigan Livestock Exchange (N=4) 2 1.25
Price received - Independent Assembly (N=7) 3 1.29
Cost to the producer - Direct to Packer (N=1) 1 1.00
Cost to the producer - Packer Buying Stations (N=1) 1 1.00
Cost to the producer - Mich. Livestock Exchange (N=3) 2 1.33
Cost to the producer - Independent Assembly (N =6) 3 1.50
Convenience of use - Direct to Packer (N=1) 3 2.00
Convenience of use - Packer Buying Stations (N=1) 3 2.00
Convenience of use - Mich. Livestock Exchange (N=4) 2 1.75
Convenience of use - Independent Assembly (N=7) 1 1.14
Carcass info availability - Direct to Packer (N=1) 1 1.00
Carcass info availability - Packer Buy. Stns. (N=1) 1 1.00
Carcass info availability - Mich. Liv. Exch. (N=2) 1 1.00
Carcass info availability - Ind. Assembly (N=2) 2 2.00
Availability for consultation - Direct to Packer (N=1) 3 3.00
Availability for consultation - Packer Buy. Stns. (N=1) 3 3.00
Availability for consultation - Mich. Liv. Exch. (N=3) 2 1.67
Availability for consultation - Ind. Assembly (N=4) 1 1.50
Confidentiality - Direct to Packer (N=1) 3 2.00
Confidentiality - Packer Buying Stations (N=1) 3 2.00
Confidentiality - Michigan Livestock Exchange (N=3) 2 1.33
Confidentiality - Independent Assembly (N=4) 1 1.25
Trustworthiness - Direct to Packer (N=1) 1 1.00
Trustworthiness - Packer Buying Stations (N=1) 1 1.00
Trustworthiness - Michigan Livestock Exchange (N=5) 2 1.20
Trustworthiness - Independent Assembly (N=7) 3 1.29
Quality of hog required - Direct to Packer (N=1) 1 1.00
Quality of hog required - Packer Buying Stations (N=1) 1 1.00
Quality of hog required - Mich. Liv. Exch. (N=2) 1 1.00
Quality of hog required - Independent Assembly (N=3) 2 1.67

0:70

0.00
0.00
0.00
0.47

150

Table 39 (cont'd)

Respondents Primarily Using - Michigan Livestock Exchange-Direct Option

Price received - Direct to Packer (N=4)

Price received - Packer Buying Stations (N=4)

Price received - Michigan Livestock Exchange (N=10)
Price received - Independent Assembly (N=2)

Cost to the producer - Direct to Packer (N=4)

Cost to the producer - Packer Buying Stations (N=4)
Cost to the producer - Mich. Livestock Exchange (IN-E10)
Cost to the producer - Independent Assembly (N=2)

Convenience of use - Direct to Packer (N=4)
Convenience of use - Packer Buying Stations (N=3)
Convenience of use - Mich. Livestock Exchange (N=10)
Convenience of use - Independent Assembly (N=2)

Carcass info availability - Direct to Packer (N=3)
Carcass info availability - Packer Buy. Stns. (N=3)
Carcass info availability - Mich. Liv. Exch. (N=8)
Carcass info availability - Ind. Assembly (N=1)

Availability for consultation - Direct to Packer (N=3)
Availability for consultation - Packer Buy. Stns. (N=3)
Availability for consultation - Mich. Liv. Exch. (N=10)
Availability for consultation - Ind. Assembly (N=2)

Confidentiality - Direct to Packer (N=3)
Confidentiality - Packer Buying Stations (N=3)
Confidentiality - Michigan Livestock Exchange (N=9)
Confidentiality - Independent Assembly (N=1)

Trustworthiness - Direct to Packer (N=3)
Trustworthiness - Packer Buying Stations (N=3)
Trustworthiness - Michigan Livestock Exchange (N=9)
Trustworthiness - Independent Assembly (N=2)

Quality of hog required - Direct to Packer (N=3)
Quality of hog required - Packer Buying Stations (N=2)
Quality of hog required - Mich. Liv. Exch. (N=9)
Quality of hog required - Independent Assembly (N=2)

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[01-th tot—wt»

Np—tt—rl—r

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pipes—spit

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APPENDIX G

151

Table 40 Information Sources Used for Market Method Evaluation, by
Primary Marketing Option

 

Respondents Primarily Using The Direct To Packer Option (N=12)
InfnmaunnSnutaas Rank Methwd MathncLZ Methadfii Mnthndjl

 

 

 

 

 

 

 

 

 

 

Word of Mouth 1 33.3% 25.0% . 33.3%
2 16.7% 8.3% 16.7%
Personnel of the 1 33.3% . 25.0% 8.3%
Marketing Method 2 8.3% . 8.3%
Advertising 1
2
Market Advisory Services 1 . . . .
2 16.7% 8.3% 8.3 8.3%
Futures Brokerage Services 1
2
Media 1
2
Extension Meetings or 1 . . . .
Personnel 2 8.3% . . 16.7%
Past Experiences 1 25.0% 33.3% 41 .7%
2 8.3% 16.7% 16.7%
Other 1 .
2 8.3%a
Other 1
2
I Have Received No Information 8.4% 41 .7% 33.3% 58.4%

If producers only used one information source, then only one was ranked. Thus the percentage of produc-
ers ranking information 2nd may not necessarily total 100%.
(.) No responses. (a) DTN.
Method 1 = Direct to Packer Method 3 = Michigan Livestock Exchange

Method 2 = Packer Buying Stations Method 4 = Independent Assembly

 

152
Table 40 (cont'd)
Respondents Primarily Using The Packer Buying Station Option (N=6)
mfannatinnfinmas Rank MathQILI Mathndl Methadii Matth_4_
Word of Mouth 1

 

 

 

 

 

 

 

 

 

 

2 33.3% . 33.3%
Personnel of the 1 . 50.0% 16.7% 16.7%
Marketing Method 2 16.7% 16.7% 33.3% 33.3%
Advertising 1
2
Market Advisory Services 1
2
Futures Brokerage Services 1
2
Media 1
2
Extension Meetings or 1
Personnel 2
Past Experiences 1 16.7% 50.0% 50.0% 16.7%
2 . . . .
Other 1
2
Other 1
2
I Have Received No Information 83.4% . 33.3% 66.6%

If producers only used one information source, then only one was ranked. Thus the percentage of produc-
ers ranking information 2nd may not necessarily total 100%.

(.) No responses.

Method 1 = Direct to Packer Method 3 = Michigan Livestock Exchange
Method 2 = Packer Buying Stations Method 4 = Independent Assembly

 

153

Table 40 (cont'd)

Respondents Primarily Using The Michigan Livestock Exchange-Yard Option
(N=72)

InfamatinniaumRankMathadJMflndZMathndlMathadA

 

 

 

 

 

 

 

 

 

 

Word of Mouth 1 11.1% 2.8% 16.7% 5.6%

2 2.8% 4.2% 9.7% 6.9%
Personnel of the l 4.2% 5.6% 22.2% 8.3%
Marketing Method 2 1.4% 2.8% 25.0% .
Advertising 1 1 .4% 1 .4%

2 1.4% 2.8%
Market Advisory Services 1 1.4% 1.4% 4.2% .

2 . 1.4% 4.2% 2.8%
Futures Brokerage Services 1

2
Media 1 . . 6.9% 4.2%

2 2.8% . 13.9% .
Extension Meetings or 1 . . .
Personnel 2 2.8% . 5.6%
Past Experiences 1 1.4% 1 .4% 34.7% 1.4%

2 2.8% . 5.6% 1.4%
Other 1 2.8% ad 1.4% d 6.9% de 4.2% ad

2 1.4% b 1.4% a 1.4% a 1.4% f
Other 1 . 1.4% c 1.4% c .

2 1.4% c . 1.4% c
I Have Received No Information 79.1% 84.6% 5.6% 76.3%

If producers only used one information source, then only one was ranked. Thus the percentage of produc-
ers ranking information 2nd may not necessarily total 100%.

(.) No responses.

(a) National l-log Magazine. (b) Personal investigation. (c) Feed salesman.

((1) Personal economic comparison. (e) Proximity. (d) Personnel contacting them.
Method 1 = Direct to Packer Method 3 = Michigan Livestock Exchange

Method 2 = Packer Buying Stations Method 4 = Independent Assembly

 

154

Table 40 (cont'd)

Respondents Primarily Using The Independent Assembly-Trucker/Broker Option

(N=10)

WMWWWW

 

 

 

 

 

 

 

 

 

 

Word of Mouth 1 . .
2 33.3% 33.3%
Personnel of the 1 . 50.0% 16.7% 16.7%
Marketing Method 2 16.7% 16.7% 33.3% 33.3%
Advertising 1
2
Market Advisory Services 1
2
Futures Brokerage Services 1
2
Media 1
2
Extension Meetings or 1
Personnel 2
Past Experiences 1 16.7% 50.0% 50.0% 16.7%
2 . . . .
Other 1
2
Other 1
2
I Have Received No Information 83.4% . 33.3% 66.6%

If producers only used one information source, then only one was ranked. Thus the percentage of produc-

ers ranking information 2nd may not necessarily total 100%.
(.) No responses.

Method 1 = Direct to Packer Method 3 = Michigan Livestock Exchange
Method 2 = Packer Buying Stations Method 4 = Independent Assembly

 

155

Table 40 (cont'd)
Respondents Primarily Using The Independent Assembly-Yard Option (N=8)

MannatinnSmnaesRankMathcdiMetthZMMMethodé

 

 

 

 

 

 

 

 

 

Word of Mouth 1 12.5% 25.0%
2 12.5% 12.5%
Personnel of the 1 12.5% 25.0%
Marketing Method 2 . .
Advertising 1 . . .
2 . . 12.5%
Market Advisory Services 1 12.5% 12.5%
2 . .
Futmes Brokerage Services 1
2
Media 1 . . . 12.5%
2 . . . 12.5%
Extension Meetings or 1 . . . .
Personnel 2 . . . 12.5%
Past Experiences 1 25.0% 25.0%
2 . 12.5%
Other 1
2
Other 1
2

 

I Have Received No Information 100.0% 100.0% 37.5%

If producers only used one information source, then only one was ranked. Thus the percentage of produc-
ers ranking information 2nd may not necessarily total 100%.

(.) No responses.

Method 1 = Direct to Packer Method 3 = Michigan Livestock Exchange

Method 2 = Packer Buying Stations Method 4 = Independent Assembly

 

156

Table 40 (cont'd)

Respondents Using The Michigan Livestock Exchange-Direct Option (N=12)

 

 

 

 

 

 

 

 

 

 

Infnnnatinnjnnrces Rank Mathndi Methndz. Methodii MenindA
Word of Mouth 1 8.3% . . 8.3%
2 . 8.3% 8.3% 8.3%
Personnel of the 1 . 16.7% 58.3% 8.3%
, Marketing Method 2 . . 16.7% 8.3%
Advertising 1
2
Market Advisory Services 1 . . .
2 . . 8.3%
Futures Brokerage Services 1
2
Media 1
2
Extension Meetings or 1
Personnel 2
Past Experiences 1 41 .7%
2 16.7%
Other 1
2
Other 1
2
I Have Received No Information 91.7% 83.3% . 83.4%

If producers only used one information source, then only one was ranked. Thus the percentage of produc-
ers ranking information 2nd may not necessarily total 100%.

(.) No responses.

Method 1 = Direct to Packer Method 3 = Michigan Livestock Exchange
Method 2 = Packer Buying Stations Method 4 = Independent Assembly

 

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