PRICE OF HEAVY HOGS PER HUNDREDWEIGHT, AS PREDICTED FROM HOG RECEIPTS AND BANK CLEARINGS OUTSIDE OF NEW YORK CITY.

JANUARY.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
162 173 184 195 206 217 228 239
$13,000,000,000 $14.55 $13.95 $13.35 $12.75 $12.15 $11.55 $10.95 $10.35
13,500,000,000 15.05 14.45 13.85 13.25 12.65 12.05 11.45 10.85
14,000,000,000 15.55 14.95 14.35 13.75 13.15 12.55 11.95 11.35
14,500,000,000 16.05 15.45 14.85 14.25 13.65 13.05 12.45 11.85
15,000,000,000 16.55 15.95 15.35 14.75 14.15 13.55 12.95 12.35
15,500,000,000 17.05 16.45 15.85 15.25 14.65 14.05 13.45 12.85
16,000,000,000 17.55 16.95 16.35 15.75 15.15 14.55 13.95 13.35
16,500,000,000 18.05 17.45 16.85 16.25 15.65 15.05 14.45 13.85
FEBRUARY.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
141 152 163 174 185 196 207 218
$10,600,000,000 $15.27 $13.67 $14.07 $13.47 $11.87 $12.27 $11.67 $11.07
11,100,000,000 15.77 14.17 14.57 13.97 12.37 12.77 12.17 11.57
11,600,000,000 16.27 14.67 15.07 14.47 12.87 13.27 12.67 12.07
12,100,000,000 16.77 15.17 15.57 14.97 13.37 13.77 13.17 12.57
12,600,000,000 17.27 15.67 16.07 15.47 13.87 14.27 13.67 13.07
13,100,000,000 17.77 16.17 15.57 15.97 14.37 14.77 14.17 13.57
13,600,000,000 18.27 16.67 17.07 16.47 14.87 15.27 14.67 14.07
14,100,000,000 18.77 17.17 17.57 16.97 15.37 15.77 15.17 14.57
MARCH.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
121 132 143 154 165 176 187 198
$12,100,000,000 $16.02 $15.42 $14.82 $14.22 $13.62 $13.02 $12.42 $11.82
12,600,000,000 16.52 15.92 14.32 14.72 14.12 13.52 12.92 12.32
13,100,000,000 17.02 16.42 15.82 15.22 14.62 14.02 13.42 12.82
13,600,000,000 17.52 16.92 16.32 15.72 15.12 14.52 13.92 13.32
14,100,000,000 18.02 17.42 16.82 16.22 15.62 15.02 14.42 13.82
14,600,000,000 18.52 17.92 17.32 16.72 16.12 15.52 14.92 14.32
15,100,000,000 19.02 18.42 17.72 17.22 16.62 16.02 15.42 14.82
15,600,000,000 19.52 18.92 18.32 17.72 17.12 16.52 15.92 15.32
APRIL.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
96 107 118 129 140 151 162 173
$11,800,000,000 $15.87 $15.27 $14.67 $14.07 $13.47 $12.87 $12.27 $11.67
12,300,000,000 16.37 15.77 15.17 14.57 13.97 13.37 12.77 12.17
12,800,000,000 16.87 16.27 15.67 15.07 14.47 13.87 13.27 12.67
13,300,000,000 17.37 16.77 16.17 15.57 14.97 14.37 13.77 13.17
13,800,000,000 17.87 17.27 16.67 16.07 15.47 14.87 14.27 13.67
14,300,000,000 18.37 17.77 17.17 16.57 15.97 15.37 14.77 14.17
14,800,000,000 18.87 18.27 17.67 17.07 16.47 15.87 15.27 14.67
15,300,000,000 19.37 18.77 18.17 17.57 16.97 16.37 15.77 15.17
MAY.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
117 128 139 150 161 172 183 194
$11,400,000,000 $15.42 $14.82 $14.22 $13.62 $13.02 $12.42 $11.82 $11.22
11,900,000,000 15.92 15.32 14.72 14.12 13.52 12.92 12.32 11.72
12,400,000,000 16.42 15.82 15.22 14.62 14.02 13.42 12.82 12.22
12,900,000,000 16.92 16.32 15.72 15.12 14.52 13.92 13.32 12.72
13,400,000,000 17.42 16.82 16.22 15.62 15.02 14.42 13.82 13.22
13,900,000,000 17.92 17.32 16.72 16.12 15.52 14.92 14.32 13.72
14,400,000,000 18.42 17.82 17.22 16.62 16.02 15.42 14.82 14.22
14,900,000,000 18.92 18.32 17.72 17.12 16.52 15.92 15.32 14.72
JUNE.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
117 128 139 150 161 172 183 194
$11,400,000,000 $15.42 $14.82 $14.22 $13.62 $13.02 $12.42 $11.82 $11.22
11,900,000,000 15.92 15.32 14.72 14.12 13.52 12.92 12.32 11.72
12,400,000,000 16.42 15.82 15.22 14.62 14.02 13.42 12.82 12.22
12,900,000,000 16.92 16.32 15.72 15.12 14.52 13.92 13.32 12.72
13,400,000,000 17.42 16.82 16.22 15.62 15.02 14.42 13.82 13.22
13,900,000,000 17.92 17.32 16.72 16.12 15.52 14.92 14.32 13.72
14,400,000,000 18.42 17.82 17.22 16.62 16.02 15.42 14.82 14.22
14,900,000,000 18.92 18.32 17.72 17.12 16.52 15.92 15.32 14.72
JULY.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
99 110 121 132 143 154 165 176
$11,500,000,000 $15.72 $15.12 $14.52 $13.92 $13.32 $12.72 $12.12 $11.52
12,000,000,000 16.22 15.62 15.02 14.42 13.82 13.22 12.62 12.02
12,500,000,000 16.72 16.12 15.52 14.92 14.32 13.72 13.12 12.52
13,000,000,000 17.22 16.62 16.02 15.42 14.82 14.22 13.62 13.02
13,500,000,000 17.72 17.12 16.52 15.92 15.32 14.72 14.12 13.52
14,000,000,000 18.22 17.62 17.02 16.42 15.82 15.22 14.62 14.02
14,500,000,000 18.72 18.12 17.52 16.92 16.32 15.72 15.12 14.52
15,000,000,000 19.22 18.62 18.02 17.42 16.82 16.22 15.62 15.02
AUGUST.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
99 110 121 132 143 154 165 176
$10,600,000,000 $15.42 $14.82 $14.22 $13.62 $13.02 $12.42 $11.82 $11.22
11,100,000,000 15.92 15.32 14.72 14.12 13.52 12.92 12.32 11.72
11,600,000,000 16.42 15.82 15.22 14.62 14.02 13.42 12.82 12.22
12,100,000,000 16.92 16.32 15.72 15.12 14.52 13.92 13.32 12.72
12,600,000,000 17.42 16.82 16.22 15.62 15.02 14.42 13.82 13.22
13,100,000,000 17.92 17.32 16.72 16.12 15.52 14.92 14.32 13.72
13,600,000,000 18.42 17.82 17.22 16.62 16.02 15.42 14.82 14.22
14,100,000,000 18.92 18.32 17.72 17.12 16.52 15.92 15.32 14.72
SEPTEMBER.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
81 92 103 114 125 136 147 158
$11,000,000,000 $15.72 $15.12 $14.52 $13.92 $13.32 $12.72 $12.12 $11.52
11,500,000,000 16.22 15.62 15.02 14.42 13.82 13.22 12.62 12.02
12,000,000,000 16.72 16.12 15.52 14.92 14.32 13.72 13.12 12.52
12,500,000,000 17.22 16.62 16.02 15.42 14.82 14.22 13.62 13.02
13,000,000,000 17.72 17.12 16.52 15.92 15.32 14.72 14.12 13.52
13,500,000,000 18.22 17.62 17.02 16.42 15.82 15.22 14.62 14.02
14,000,000,000 18.72 18.12 17.52 16.92 16.32 15.72 15.12 14.52
14,500,000,000 19.22 18.62 18.02 17.42 16.82 16.22 15.62 15.02
OCTOBER.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
98 109 120 131 142 153 164 175
$12,800,000,000 $15.27 $14.67 $14.07 $13.47 $12.87 $12.27 $11.67 $11.07
13,300,000,000 15.77 15.17 14.57 13.97 13.37 12.77 12.17 11.57
13,800,000,000 16.27 15.67 15.07 14.47 13.87 13.27 12.67 12.07
14,300,000,000 16.77 16.17 15.57 14.97 14.37 13.77 13.17 12.57
14,800,000,000 17.27 16.67 16.07 15.47 14.87 14.27 13.67 13.07
15,300,000,000 17.77 17.17 16.57 15.97 15.37 14.77 14.17 13.57
15,800,000,000 18.27 17.67 17.07 16.47 15.87 15.27 14.67 14.07
16,300,000,000 18.77 18.17 17.57 16.97 16.37 15.77 15.17 14.57
NOVEMBER.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
122 133 144 155 166 177 188 199
$12,400,000,000 $14.36 $13.76 $13.16 $12.56 $11.96 $11.36 $10.76 $10.16
12,900,000,000 14.86 14.26 13.66 13.06 12.46 11.86 11.26 10.66
13,400,000,000 15.36 14.76 14.16 13.56 12.96 12.36 11.76 11.16
13,900,000,000 15.86 15.26 14.66 14.06 13.46 12.86 12.26 11.66
14,400,000,000 16.36 15.76 15.16 14.56 13.96 13.36 12.76 12.16
14,900,000,000 16.86 16.26 15.66 15.06 14.46 13.86 13.26 12.66
15,400,000,000 17.36 16.76 16.16 15.56 14.96 14.36 13.76 13.16
15,900,000,000 17.86 17.26 16.66 16.06 15.46 14.86 14.26 13.66
DECEMBER.
Bank Clearings Outside New York. Hog Receipts at Chicago, in Millions of Pounds.
158 169 180 191 202 213 224 235
$12,800,000,000 $14.06 $13.46 $12.86 $12.26 $11.66 $11.06 $10.46 $ 9.86
13,300,000,000 14.56 13.96 13.36 12.76 12.16 11.56 10.96 10.36
13,800,000,000 15.06 14.46 13.86 13.26 12.66 12.06 11.46 10.86
14,300,000,000 15.56 14.96 14.36 13.76 13.16 12.56 11.96 11.36
14,800,000,000 16.06 15.46 14.86 14.26 13.66 13.06 12.46 11.86
15,300,000,000 16.56 15.96 15.36 14.76 14.16 13.56 12.96 12.36
15,800,000,000 17.06 16.46 15.86 15.26 14.66 14.06 13.46 12.86
16,300,000,000 17.56 16.96 16.36 15.76 15.16 14.56 13.96 13.36

LIMITATIONS OF THE MATHEMATICAL METHOD

Such a mathematical formula as: Hog prices equal .56 bank clearings—.56 hog receipts must always be applied with common sense. In November of 1914, for instance, hog receipts at Chicago were abnormally small on account of foot-and-mouth disease, and in December of the same year they were abnormally large for the same reason. Judging from receipts, we might have expected heavy hogs to sell for $8.83 in November and $6.44 in December. As a matter of fact, the actual price was $7.50 in November and $7.10 in December. It was commonly recognized by the trade that hog receipts at Chicago in November and December of 1914 were abnormal, and not representative of the potential supply in the country at large.

Occasionally, as in November of 1907, falling prices act to curtail receipts. The small receipts in November, 1907, would have indicated a price of $6.75, whereas the actual price was $4.90. As a matter of fact, there was a large number of hogs that year, and the actual price reflected the potential supply rather than the temporary supply.

It is possible to refine the method considerably. For instance, it may be worth while to proceed on the assumption that the relation between hog prices and hog receipts is best expressed by an equation representative of a hyperbola or skew curve instead of a straight line. The straight line equation, based on the years 1903 to 1915, inclusive, is:

Hog prices equal −.8 −.56 hog receipts.

The hyperbola equation for these years is:

Hog prices equal −1.24 −.55 hog receipts
  +.0046 hog receipts squared.

The skew or cubic curve equation is:

Hog prices equal −1.18 −.24 hog receipts
  +.0027 hog receipts squared
  −.00079 hog receipts cubed.

Using these more complex mathematical methods, it is often possible to express the relationships more exactly. But no method, however far refined, will take the place of common sense market judgment. Nevertheless, it may be decidedly helpful to a better understanding of the normal working of supply and demand to use both hyperbolas and cubic curves on occasion.

Chart illustrating the straight line as compared with the skew curve, for purposes of expressing the relation between hog receipts at Chicago and hog prices at Chicago. On the basis of the curve when the receipts are 45 per cent less than the secular trend corrected seasonally, the price should be 38 per cent over, and when the receipts are 42 per cent over the secular trend corrected seasonally, the price should be 33 per cent under.

Other refinements of the mathematical study of hog prices may consist in working out the correlation coefficients between hog prices and receipts at six markets or eleven markets instead of using Chicago receipts alone. Work may be done looking into the relation between hog prices and potential supply as contrasted with the temporary or month-by-month supply. So far as the relation between hog prices and business conditions is concerned, it should be worth while to work out correlation coefficients between hog prices and the amount of new building, or hog prices and Dun’s index number. In fact, there are a great many measures of business activities which may possibly measure the demand for hogs better than bank clearings outside of New York City.[9]

Some people may think it advisable to work out a correlation and line of regression illustrating the relation between hog prices and corn prices. This has been attempted, but it has been found that after the secular and seasonal trends are taken out of both corn prices and hog prices there is practically no relation between them. It is a curious commentary on our present marketing systems that corn prices and hog prices, while very closely related decade by decade, have very little influence on each other month by month. In other words, changing costs of production can have practically nothing to do with the month-by-month changes in the market price under our present economic system. Unusually high corn prices today are more likely to influence the hog prices of next year than the hog prices of today.

After everything has been done which can be done by mathematical method, there will still be room for common sense judgment. But such judgment is best applied by men wise in market lore, men familiar with the technique of production, and who also are familiar with such mathematical methods as are here described.

CONCLUSIONS BASED ON RATIOS AND MATHEMATICS OF SUPPLY AND DEMAND

By means of corn-hog ratios, it is possible to determine with great accuracy month by month the production cost of one hundred pounds of hog flesh. The actual price, however, has been quite different from the cost-of-production price, except as an average of long periods of time. This is indicated by the profit and loss chart on page 32, the black areas above and below the zero line indicating the departure of the actual price from the ratio or cost of production price.

The actual price heretofore has been determined chiefly by the action of supply and demand and not by cost of production. The close agreement between actual price and the supply-and-demand price as based on a formula derived from bank clearings and hog receipts is shown on page 96. In the chart on page 107 are presented the cost-of-production price based on ratios and the supply-and-demand price as based on bank clearings and hog receipts.

The ratio or cost-of-production price is much steadier than the supply-and-demand price. If the farmers could arrange with the packers for a price more nearly representing the cost-of-production or ratio price, it is obvious that the supply of hogs might be considerably steadied. Once farmers realize that neither excessive profits nor excessive losses are to be expected in the hog business, they will steady down to producing about the same number of hogs each year, and they will send them to market in a uniform stream, instead of in irregular spurts.

Of course, there are always uncertainties in the way of weather, disease, etc. Hot, dry weather in July and August may curtail the corn crop and shoot up the price of corn and the cost of producing hogs. Such hot, dry weather immediately increases the cost of producing hogs. The packers, heretofore, have been either unable or unwilling to pay a price for hogs sufficient to cover the increased cost of production caused by the hot, dry weather, and as a result they have been compelled to pay more than cost of production a year or so later. Why shouldn’t the packers and farmers constantly educate the public to pay the cost-of-production price? Tell the public that the drouth and high corn prices have increased the cost of producing hogs, and the price must be increased to prevent a shortage next year. Why shouldn’t the farmers try to find a way to regulate the supply with an iron hand, in an endeavor to maintain approximately the cost-of-production price at all times? This means willingness to lower the price of hogs in years when the corn crop is large, as well as ability to raise the price in years of a short corn crop.