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Using Formula Prices in the Absence of Publicly Reported Prices: An Application for Segregated Early Weaned Pigs

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  • Kevin C. Dhuyvetter

Abstract

A formula for deriving the price of segregated early weaned pigs using corn, soybean meal, and market hog prices was estimated by equating return on investment for the different phases of production. USDA reported prices were compared with prices derived from this and several other common formulas. Based on several accuracy measures, the estimated formula was better at predicting spot-market prices than other formulas. Producers appear to form price expectations based on futures plus expected basis rather than simply futures or current cash prices. However, the method of choosing price expectations will depend on the risk attitudes of the buyer and seller and their business relationship. Developing pricing formulas based on the framework outlined here (equal returns on investment) has merit for establishing prices in the absence of publicly reported information. However, it is important that users of the formula understand the conceptual framework of how and why it was developed.

Suggested Citation

  • Kevin C. Dhuyvetter, 2004. "Using Formula Prices in the Absence of Publicly Reported Prices: An Application for Segregated Early Weaned Pigs," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(4), pages 539-551.
    • Handle: RePEc:oup:revage:v:26:y:2004:i:4:p:539-551.
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    File URL: http://hdl.handle.net/10.1111/j.1467-9353.2004.00198.x
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    1. James S. Eales & Brian K. Engel & Robert J. Hauser & Sarahelen R. Thompson, 1990. "Grain Price Expectations of Illinois Farmers and Grain Merchandisers," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 701-708.
    2. Bradshaw, Girard W. & Orden, David, 1990. "Granger Causality From The Exchange Rate To Agricultural Prices And Export Sales," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(1), pages 1-11, July.
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    2. Ganneval, S., 2016. "Spatial price transmission on agricultural commodity markets under different volatility regimes," Economic Modelling, Elsevier, vol. 52(PA), pages 173-185.
    3. Sporleder, Thomas L. & Boland, Michael A., 2011. "Exclusivity of Agrifood Supply Chains: Seven Fundamental Economic Characteristics," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 14(5), pages 1-15, December.

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