Which competitors negotiate a hogs back

Nobody likes to pay more for something than the next guy. No one wants to take less at the marketplace than somebody else gets.

But both scenarios are common - often because some people are simply better negotiators. See the sidebar on page BC-2 for some examples of the thousands of dollars of potential savings from negotiating better terms. To drive the point home that almost everything is negotiable, DiPietre says almost every dimension of any contract - production, marketing and feed contracts, for example - is open to some bargaining.

The basic techniques, as he describes later, are also the same no matter what you're bargaining for. Anything you buy in bulk, from propane to employee insurance programs, is potentially negotiable. Initial quotes on interest rates and the terms of the loan, for example, are based on a subjective assessment, he explains. Realize too, that large volume producers have the power of size on their side. When you buy as much as 10 or 20 other producers together, suppliers want your business.

One negotiating point might be, "Bring the price down to a reasonable amount and I'll swing all my business your way for the next year. When you think of a volume discount, the homework you have to do really is to understand whether the company you are buying from is going to get a particular savings from the volume, says DiPietre. Say you take a whole truckload rather than half a truckload. A truck with only one drop probably offers some savings to the seller.

Large producers in North Carolina buy corn out of the Corn Belt on unit trainloads. The train doesn't have to stop and unload certain cars and re-hook other ones, so they can get some discounts. Do Your Homework Know from the start that the people you are dealing with are professionals.

Whether a lender, a feed supplier, a packer or a car dealer, they negotiate nearly every day. They understand your business and know their negotiation limits. Expect them to also know the psychology of negotiation. If possible, get the "list price" like you get when pricing a car. Or, if you are looking for competitive interest rates, check The Wall Street Journal for the published rates banks are charging, DiPietre adds.

If you track it, you'll find your bank rate tracks pretty closely, plus a certain percentage i. Consultants - marketing, herd health, engineering, nutrition, accounting, genetics, etc. Part of the strategy is knowing what range the other party has, how much they are likely to move within that range and what will trigger movement.

Some items are high mark-up. DiPietre cites an extended warranty as an example, "A salesman quoted me a price on it. I commented that I might be interested at half that price and he jumped on it immediately. Knowing that, you can often negotiate a reasonable sales price which is good for both parties. DiPietre relates his last car buying experience.

It took three visits. The other ingredient was that I was reasonably confident I could get the deal I was asking for somewhere else if I couldn't get it there. But there may be more to a "good deal" than just price. Buying a car from a hometown dealer may assure more personal attention and responsibility for repairs and service after the deal is made. Also, don't back yourself into a corner with nowhere to go. Research your position. Know your alternatives before you cut yourself off from one supplier or buyer, for example.

In the first place, DiPietre says, that's very difficult to do. Second, if you plan to have a long-term relationship with the other party, beating the other person may set the stage for revenge.

You don't want anybody leaving the table, then thinking a day or two later they've really been taken, he adds. A lot of people think that winning in negotiation means ravaging the other guy. You have to leave something on the table for both of you. But don't give everything away, either, DiPietre cautions. The higher the stakes, the more research you need to do. One of the first things to realize is that negotiation is an art, says DiPietre.

Therefore, like other arts - music, theater, etc. Brainstorm Creatively Sometimes right in the middle of negotiations you're going to be hit with something you never expected. Maybe you're dealing on a parcel of land and you thought the negotiation was all about price. Then the seller tosses in that he wants to make sure you never spread manure on the south half of the property because he has relatives living down that way.

Give and take can work. Just don't speak too quickly. If your creative brainstorming requires 10 minutes of silent thinking time, or 30 minutes, don't be pushed. You may reach a conclusion at the first session. But you don't have to. When you might be dealing on thousands of dollars difference, you can afford the time even though you may want to get it done quickly.

If you're not a very persuasive person, you may be better off to hire a professional to negotiate for you. There are also things you might only deal with once every years, or even once in your lifetime.

Or perhaps it's an especially big deal. Then a professional may be your best choice. Consultants are usually the ones who serve as professional negotiators for farmers, says DiPietre.

It may be your veterinarian working on your behalf to get the best buy on vaccines and medicines. Your accountant or other tax specialist will negotiate with the Internal Revenue Service IRS , if it becomes necessary. A consulting engineer could negotiate with contractors on a building project.

If your own consultant isn't a professional negotiator, he will probably know some others who have that special skill. Even though they may give the impression they are working for you, they are sizing you up for the seller and communicating things about you to the seller. Just don't be afraid to ask for help.

For small loads, the per pig cost of a long haul can be prohibitive. Therefore, producers with only a few pigs to sell at a time can be trapped into only considering nearby markets.

High transportation costs per pig marketed have encouraged some smaller producers to try pooling their marketings with other producers. Combining their market animals with other hog operations can make shipping hogs via semitrailer loads feasible and enable producers to consider selling their hogs at a greater number of locations.

Selling cost. The public markets, terminals and auctions have set commission, yardage, feed, and insurance fees that are incurred when selling through those markets. These costs must be deducted from the price to determine actual net farm price. Other marketing programs also may have marketing fees attached to them, and these should be handled the same way as public marketing fees. One of the complicating factors in choosing a market for slaughter hogs is that all markets do not price hogs in the same manner.

Producers marketing directly often have a choice in pricing method. These pricing or selling options can be divided into three categories: live pricing including both appearance pricing and reputation pricing , carcass merit pricing, and contract pricing which might or might not rely on a carcass merit pricing system.

Live pricing. About a third of hogs sold in the United States are priced by the buyer based upon their live weight. Since buyers have access to packer cut-out information from hogs previously delivered by a producer, live hog bids become reputation bids based upon the carcass traits of previous marketings.

This approach is actually a lagged carcass merit program, i. The major advantage of live pricing is that it is easy for the seller to understand.

The price is simply multiplied by the weight of the hogs to calculate the value of the hogs and the producer knows his income when the hogs are delivered. In any average pricing technique, there is a natural tendency to underprice hogs with heavy muscled, lean carcasses and overprice hogs with light muscled, fat carcasses.

As a result, producers selling better than average value hogs should shy away from live pricing based on appearance. Carcass merit pricing. The major method of selling or pricing hogs is carcass merit, sometimes called grade and yield. Under this method, individual hog carcasses are evaluated as they pass from the kill floor to the chill room in an attempt to measure percent lean. Two factors typically used in the evaluation process are carcass weight and depth of backfat. Backfat depth typically is measured by a ruler or a mechanical probe.

Some packers use additional measurements such as loin depth, or percent ham and loin in making their carcass value evaluation. Price premiums or discounts from a base price are computed for each carcass to determine the value of the hog. The principal advantage of carcass merit pricing is it can more accurately reflect hog carcass values than live pricing.

Most buyers using this evaluation technique send the seller a detailed report on the grading and pricing of the hogs. This report can be used by producers as a guide in making management decisions such as selecting breeding stock and choosing the proper market weight. The major disadvantage of carcass merit pricing is that it is mysterious. Carcass measurements are taken long after the producer has returned home and each packer uses different measurement techniques and formulas to arrive at percent lean.

If an error is made on carcass lean, fat content or weight, it is impossible to re-evaluate because the carcasses are fabricated and sold before the seller receives his report. Another disadvantage to the seller is, in most cases, the seller assumes the loss on totally or partially condemned carcasses. Finally, payment is delayed until after the hogs have been slaughtered and evaluated. This concern has produced significant price differentials between fat and lean hogs.

Over a longer time period, changes in genetics and facilities might be necessary to improve carcass leanness and muscling. Increasing the percent lean of hogs marketed will benefit individual producers in the form of higher prices received for hogs and also can be beneficial to the industry as it will help ensure that consumers receive the leaner pork cuts they desire.

Contract pricing. There is a growing interest on the part of producers in contract marketing. With this approach, both the buyer usually a packer and the price are established in advance of marketing through an agreement between the producer and buyer. It can be of value to a packer to know that a predetermined number of hogs will be available at a certain time to fill slaughter plant requirements.

For the producer, the ability to eliminate the risk associated with fluctuating market prices can be very attractive. Contract pricing is usually of two types: short-term in which the packer off-sets the contract with a hedge in the futures market and long-term. Long-term agreements can be subdivided into two forms. The first can be characterized as formula price agreements where the producer receives a base price tied to a major market such as the Iowa-Southern Minnesota direct market plus a negotiated premium or discount from that base price.

The second type of long term agreement is more of a risk sharing agreement which takes the same base price plus a premium or discount, but establishes both a maximum and minimum price. If the calculated price falls outside this range, the packer and producer split the difference based on prearranged terms. Many contracts split the differences equally.

Mixed pricing. Some producers use more than one pricing method to sell their hogs. They use carcass merit pricing on their best cutting hogs and sell their fatter hogs on a live weight basis, frequently in a different market. Producers like to sell their hogs at a premium. These premiums will exist only if the buyer is obtaining hogs of consistently higher cutability, more uniform cutability, or more uniform weight than the general hog supply.

Buyers will not pay premiums if they are not gaining additional value from the hogs. To assure they are not paying top prices for inferior hogs, most buyers use price discounts as part of their buying program. Sort loss. Most buyers sort hogs into a uniform group by weight and appearance, then discount any hogs which are heavier or lighter than the group average. The more strict the sorting criteria, the greater the potential for sort loss.

Marketing frequency. There is a trade-off among load size, sort loss, and marketing frequency. The more often the producer markets hogs, the more uniform will be the group sold and thus the smaller the sort loss. However, frequent marketing produces small groups which can mean higher transportation and handling costs per hog. Less frequent marketing will increase the load size, but it also will increase sort loss. Market weight. Hog market weights fluctuated little from the mids through the mids, but the average market weight of hogs has been increasing by more than one pound per year since For example, in the hog market weight averaged lb compared to a lb average in This trend toward heavier market weights is partially attributable to changes in genetics and feeding programs, but the primary force has been packer preferences.

The weight at which hogs are slaughtered is determined primarily by packers when they set the weight ranges for which they are willing to pay top prices. Currently, the most common weights that receive top prices are lb. A few packers pay top prices for lighter weights, and at least one packer buys hogs with no discount up to lb, if they are heavily muscled hogs.

However, in some markets, price discounts for hogs above lb are substantial. The cost of killing a heavier hog is approximately the same as it is for a lighter hog and packers also have higher yields from heavier carcasses when they process the product, such as hams, into boneless portions. Therefore, heavier hogs generally are worth more to packers that can market heavier cuts without selling them at a discount. There is no single best weight at which hogs should be marketed.

Hog producers must try to match the production performance of their hogs feed conversion and rate of gain to the packers desire to buy hogs in a certain weight range with certain carcass traits. Hogs get fatter and feed conversion becomes less efficient as hogs grow older and larger.

There is great variation in the genetic ability of hogs to be fed to heavier weights. Age, space requirements and convenience combine to determine the actual weight at which most hogs are sent to slaughter. Since most producers have a limited amount of finishing space available, the marketing date for hogs often is determined by when the finishing space is needed for a new batch of hogs. This is evident from the strong seasonal pattern in average barrow and gilt slaughter weights.

Convenience of marketing also impacts marketing decisions. During spring planting and fall harvest, hog weights often climb as producers try to work around cropping demands. Some producers try to determine when to sell hogs by anticipating price changes. For example, when hog prices are higher than most market analysts have predicted, there is a tendency for some producers to rush hogs to market in advance of the expected price drop to predicted levels.

Conversely, when hog prices are below predicted levels, producers have a tendency to delay marketing by a few days in the hope that prices will soon rise closer to predicted levels.

This behavior by producers tends to sustain the unexpected price level. Unexpectedly low prices can delay marketings which result in heavier and fatter hog carcasses thereby increasing pork sold and reducing hog prices.

Conversely, accelerating marketings results in selling hogs at lighter weights and thereby helps restrict total pork production which is supportive of hog prices. Split-sex marketing. Barrows and gilts do not grow at the same rate. Gilts tend to grow slower and produce leaner carcasses than barrows. Thus, if a producer wishes to sell comparable carcasses, it will be necessary to sell barrows at a younger age than gilts.

Know your hogs. Producers should make regular and continuous use of slaughter data in order to know the true carcass characteristics of the hogs they sell, including how much variation there is among the hogs in a load and how much variation there is between loads. Over time, slaughter data can give producers insight regarding the impact changing genetics, feeds, facilities, and health programs have on the leanness and muscling of their hogs.

With this information it is possible for producers to continuously improve the carcass value of the hogs they market and improve the price received for their hogs. Producers of leaner-than-average hogs generally will find it difficult to capture the full value of their hogs if they use traditional liveweight pricing for their hogs.

In order for producers to be adequately compensated for superior leanness in their hogs, buyers must know by how much the hogs are above average. This requires selling hogs to a packer who knows by past experience the carcass value of the hogs, or selling the hogs on a carcass merit program.

The customer is always right. In any good marketing plan the primary focus should be on the customer. Producers who get the most for their hogs think a lot about what packers the customer want and how to supply it. What do hog packers want? Packers also want big, healthy, residue-free hogs that will not produce any condemned or trimmed carcasses. The bigger the hog, the lower the per pound cost of processing and the greater the flexibility in producing boneless cuts.

Furthermore, packers want hogs capable of producing a quality product they can sell at a premium.