Analysis of Two Hypothetical Long-Term Hog Marketing Agreements: Cost-Plus and Window Price, 1986-1996

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1997
Authors
Lawrence, John
Lawrence, John
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Two alternative long-term marketing contracts between producers and packers were compared over a 10-year period. Contracts offered in the industry differ greatly. The two contracts considered here represent a cost-plus contract and a $38-48 window price contract. They were compared using actual prices from 1986-1996 and at prices that were five percent lower than actual prices. Both contracts reduced the variabillity of prices and produced higher minimum prices than were offered in the cash market.

The appeal of the contract depends on the producers' outlook for price levels in the future. At prices equal to those of the previous 10 years, both contracts resulted in lower average prices. At 5% lower prices, the cost-plus contract was higher and the window price contract was lower than the cash price.

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