SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS
DECEMBER, 1989
A MARKOV CHAIN ANALYSIS OF PORK FARM SIZE
DISTRIBUTIONS IN THE SOUTH: REPLY
W. Terry Disney, Patricia A. Duffy, and William E. Hardy, Jr.
Rhodes’ claim, that our analysis (DDH)
“seems curiously unrelated to the structure of
real-world hog production,” is based on two
criticisms. First, he suggests that our paper
suffers from an apparent lack of knowledge
about the industry as reflected in the poor use
of data and industry assumptions that are not
factual. Second, he argues that the analysis
hinges on an assumption of the unlikely per-
sistence of high hog∕com price ratios. It seems,
however, that he ignores the major objective
of our research effort, which was to provide
information on how changing corn prices af-
fect the size structure of pork farming in the
South.
The South accounted for 15.1 percent of na-
tional pork production in 1982. Of this, 9 per-
cent occurred in the South Atlantic Census
Division. In 1982, Census data compiled by
Disney show that there were 27,277 pork farms
in the South Atlantic Census Division. Pro-
ducers of less than 50 market hogs per year
accounted for 20,826 of those farms. Another
5,564 farms produced less than 200 market
hogs per year. This left 673 producers raising
between 200 and 500 market hogs per year
and only 214 producers selling more than 500
market hogs per year. Admittedly, no further
breakdown of these large producers was made.
However, it should be clear that the size cate-
gories chosen by DDH and reported in Census
reports are reflective of the actual pork in-
dustry in the South Atlantic Census Division.
It is expected that new Census data will
show a substantial increase in the number of
extra-large pork farms. This will, in fact, be
due to a flourish of vertical integration within
the pork industry along the East Coast. The
increased presence of various forms of verti-
cal integration, therefore, substantiates
Rhodes’ criticism that initial entry into pork
farming is more likely at the larger size cate-
gories. However, DDH does not rely on an
assumption of initial entry only at the small
size category. We merely suggest (p. 63) that
the presence of higher hog∕corn price ratios
could provide the incentive for grain produc-
ers to begin raising hogs as a means of more
profitably marketing their grain. This new
entry, we hypothesized, would most likely oc-
cur in the small and medium size categories.
Discussions with those familiar with pork pro-
duction in the South Atlantic Census Division
will quickly lead one to conclude, however, that
the trend is toward more single-enterprise
pork farming.
Rhodes’ second criticism, that hog∕com price
ratios of 35 (number of bushels of corn equal
in value to 100 pounds of hog, live weight)
were unrealistically high and were the reason
for our resulting shifting pork farm size dis-
tributions, is somewhat confusing. Actually,
three hog∕corn price ratios were used repre-
senting low, medium, and high levels for the
hog∕corn price ratio. At the time this research
was originally conducted, hog∕corn price ra-
tios in the upper thirties had not been ob-
served. However, during September of 1986,
the hog∕corn price ratio was reported at 40.2.
The yearly average for 1987 was 33.6 (USDA).
As DDH comments (p. 63), the long-term
effects of decreased corn prices on the hog/
corn price ratio are difficult to determine.
Therefore, the range of hog∕corn price ratios
was used to allow those interested in the ef-
fects of grain policy on pork farm size and
structure to determine the direction of change
in the industry, although admittedly holding
many other variables constant.
W. Terry Disney is a Graduate Research Assistant, Patricia A. Duffy is an Assistant Professor, and William E. Hardy, Jr., is a
Professor, Department of Agricultural Economics, Auburn University.
Copyright 1989, Southern Agricultural Economics Association.
219