Feeder-pig producers and finishers: Who should contract?

The purpose of this study is to determine the minimum level of contract payments required to produce hogs under a production contract. Required payments needed for contract growing to be preferred to independent production for the average-profit, slightly risk-averse, feeder-pig producer and for the high-profit, moderately to strongly risk-averse, feeder-pig producer are found to be similar to those currently offered by contractors. Feeder-pig finishers with average profit levels would either have to be strongly risk-averse or expect economic profits to fall to zero to prefer contracting over independent production. Low-profit feeder-pig finishers who are moderately to strongly risk-averse would prefer contracting. Feeder-pig finishers who historically have experienced above-average profits would require payments substantially above current contract rates to prefer contracting.