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Thin at the Margin: Negotiated Hog Volumes and Price Sensitivity in an Increasingly Contracted Industry

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  • Parcell, Joe
  • Malson, Mackenzie
  • Tonsor, Glynn

Abstract

This research examines whether the economic role of negotiated hog transactions has changed as U.S. hog procurement has shifted toward formula contracts and packer ownership. The premise is that market hog production is largely predetermined in the short run, while many formula-priced and packer-owned hogs are scheduled before the pricing period. As negotiated trade becomes a smaller residual segment, negotiated hog prices may become increasingly sensitive to marginal changes in negotiated volume. Total procurement is decomposed into negotiated, contract/formula, and packer-owned quantities. Thinness is defined as one minus the negotiated share of the procurement total. The full-sample thinness interaction is positive and statistically insignificant, suggesting that a single coefficient over the full sample masks any structural change. In contrast, the thinness interaction is negative in all four subperiods and is large and statistically significant in the 2019-2025 period. The most recent period implies a short-run negotiated price flexibility of approximately -0.32 at mean thinness. These findings support the interpretation that negotiated hog prices have become more sensitive to negotiated volume.

Suggested Citation

  • Parcell, Joe & Malson, Mackenzie & Tonsor, Glynn, 2026. "Thin at the Margin: Negotiated Hog Volumes and Price Sensitivity in an Increasingly Contracted Industry," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404531, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea26:404531
    DOI: 10.22004/ag.econ.404531
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    References listed on IDEAS

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    1. Parcell, Joe & Mintert, James & Plain, Ron, 2004. "An Empirical Investigation of Live-Hog Demand," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(3), pages 773-787, December.
    2. Martinez, Stephen W., 1999. "Vertical Coordination in the Pork and Broiler Industries: Implications for Pork and Chicken Products," Agricultural Economic Reports 34031, United States Department of Agriculture, Economic Research Service.
    3. Michael K. Wohlgenant, 1989. "Demand for Farm Output in a Complete System of Demand Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 241-252.
    4. James P. Houck, 1965. "The Relationship of Direct Price Flexibilities to Direct Price Elasticities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(3), pages 789-792.
    5. Luke, Jaime R. & Tonsor, Glynn T. & Brown, D. Scott, 2024. "Wholesale pork demand: Understanding primal-level heterogeneity," Journal of Commodity Markets, Elsevier, vol. 34(C).
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