How to use LMR swine reports for 

risk management and to facilitate 

marketing 

Lee Schulz, Associate Professor & Extension Economist

Iowa State University
Hogs are NOT homogeneous, sold at different 

times/places, & nobody has full/perfect information

• LMR encourages competition in the marketplace by bringing 

transparency, breadth, and depth to market reporting

• Published prices can vary greatly. They are all correct.

‒ Different purchase types generally represent different hogs and/or time periods

‒ Variation often extreme during large supply or demand shocks

• The “law of large numbers” states that as a sample size grows, its mean 

gets closer to the average of the whole population 
NATIONAL NET PRICE DISTRIBUTION

Barrows & Gilts

Data Source: USDA-AMS-LPGMN

LM_HG215 National Daily Direct Hog Prior Day Report-Average Net Price Distribution

Negotiated $65.70 Data Visualization

Other Market Formula (FUT/OPT) $71.23

Swine or Pork Market Formula $78.57

Other Purchase Arrange $77.29

Packer Sold (All Purchase) $75.54

Wtd. Avg. Net Price

Negotiated $73.91

Other Market Formula (FUT/OPT) $87.31

Swine or Pork Market Formula $92.04

Other Purchase Arrange $90.92

Packer Sold (All Purchase) $91.59

Wtd. Avg. Net Price
Relationship between cash prices and futures 

prices is critical for price risk management

Basis = Cash Price – Futures Price

• Being able to reliably forecast basis is key to successful hedging

• Moving averages of historical basis values provide a useful method for 

forecasting basis

• Moving averages (3-year, 5-year, etc.) appealing due to data availability 

and straightforwardness of implementation
Where do cash prices come from?

• (LM_HG204) Iowa/Minnesota Daily Direct 

Prior Day Hog - Purchased Swine

o Now included in LM_HG218

The critical basis for any hedger is the difference 

between the futures prices and his/her cash 

market. All that matters is whether the futures 

and his/her specific cash market move together.
Market information needed to easily and quickly 

compare available marketing opportunities 

• Develop expectations regarding current supply and demand conditions 

and where to begin price negotiations

• Published prices provide a means to evaluate alternative marketing 

agreements

o “The best predictor of future performance is... past performance (or is the best we have)”
https://www.card.iastate.edu/products/publications/synopsis/?p=1333

What data allow for these comparisons?

• National Daily Direct Hog Prior Day Report - Slaughtered Swine 

(LM_HG201)

• National Daily Direct Hog Prior Day Report - Average Net Price 

Distribution (LM_HG215)
Formula contract 2017-2021 2017-2019, 2021 Avg 2017-19 2020 2021

#1 $74.83 $76.27 $75.71 $69.51 $96.57

#2 $69.30 $73.78 $71.47 $52.24 $98.80

$/cwt
Recent “shocks” have reinforced the importance of 

LMR market information 

• Document and corroborate impacts

• Better understand disruptions 

and anticipate impacts 

https://onlinelibrary.wiley.com/doi/10.1002/agr.21674
Data Source: USDA-NASS & USDA-AMS

Livestock Marketing Information Center

Labor Day 

2019

Labor Day 

2020

Friday 

Christmas & 

New Years 

2020

‘20 vs.‘19: +796,290 head (+0.6%)
Data Source: USDA-AMS-LPGMN

LM_HG201 National Daily Direct Hog Prior Day – Slaughtered Swine
Data Source: USDA-AMS-LPGMN & CME Group; Compiled by LMIC

LM_HG201 National Daily Direct Hog Prior Day – Slaughtered Swine 

3/20/2020
Data Source: USDA-AMS-LPGMN; Compiled by LMIC

LM_HG201 National Daily Direct Hog Prior Day – Slaughtered Swine

2020 vs. 2019

Negotiated -$14 | -22%

Oth. Mkt. Form. -$7 | -9%

S/P Mkt. Form. -$7 | -10%

Oth. Pur. Arrg. -$4 | -5%

Total Wtd Avg -$6 | -8%
Data Source: USDA-AMS-LPGMN

LM_HG215 National Daily Direct Hog Prior Day Report-Average Net Price Distribution

Negotiated $27.33

Other Market Formula (FUT/OPT) $67.00

Swine or Pork Market Formula $46.62

Other Purchase Arrange $60.19

Packer Sold (All Purchase) $45.05

Wtd. Avg. Net Price
-$33/cwt

-$71/head

Avg. Feb-Jan

-$14/cwt 

-$30/head

https://www.card.iastate.edu/products/policy-briefs/display/?n=1301

Where do cash prices come from?

• (LM_HG204) Iowa/Minnesota Daily Direct 

Prior Day Hog - Purchased Swine

o Now included in LM_HG218
https://www.extension.iastate.edu/agdm/

http://www2.econ.iastate.edu/estimated-returns/

http://www2.econ.iastate.edu/margins/

 Decision-oriented agricultural business “toolbox” designed for farmers, 

lenders, farm managers, agriculture instructors, and others 

 Monthly livestock market outlook column provides information, analysis, 

and economic perspective on issues impacting cattle producers 

 Monthly barometer of swine production and cattle feeding costs 

and returns

 Weekly hog production and cattle feeding “crush margins” and tracked 

changes serving as an indicator of risk management opportunities