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U.S. government shutdown forces Cargill, Smithfield to change hog pricing

Smithfield hams line the shelves at the Taste of Smithfield restaurant and gourmet market in Smithfield, Virginia May 30, 2013. REUTERS/Rich-Joseph Facun

By Alyce Hinton

CHICAGO (Reuters) - U.S. meat packers Smithfield Foods Inc <000895.SZ> and Cargill Inc (CARG.UL) said they will change the methods they use to determine what price to pay for hogs on Monday because of the partial U.S. government shutdown.

The companies typically use data from the U.S. Department of Agriculture's Agricultural Marketing Service to determine the cash value for hogs. However, USDA market prices have been suspended due to the government shutdown that began on October 1.

Smithfield, the largest U.S. pork packer, said in a letter to producers on Friday that it will begin using CME Group Inc (CME) data to price hogs. CME owns the Chicago Mercantile Exchange, where livestock contracts are traded.

"We have determined that substituting the daily changes in the Chicago Mercantile Exchange lean hog market close for the day of harvest will most closely approximate changes in the USDA reported price during the period of time until the USDA resumes publishing," Smithfield said in the letter.

"This approach will be valid through October 12, 2013, at which time we will evaluate whether or not to continue with this interim pricing method," the letter said.

U.S. livestock markets are reeling from this week's disruption of USDA data as packers, producers and traders depend on daily slaughter, wholesale pork and beef prices to calculate livestock prices. The reports were suspended, along with thousands of other market reports, when the government shut down.

Earlier this week, Smithfield said it was calculating the price it paid for cash hogs based on USDA market hog prices on September 30 for each day through October 4, but would change its pricing method if the shutdown continued.

Cargill, the third largest U.S. meat processor, told producers in a letter on Friday that it will use price data from private firm Urner Barry to price hogs starting on Monday. Urner Barry is closely followed by livestock packers and traders for its meat prices and data.

Cargill said it can not guarantee the accuracy of Urner Barry's numbers or be held responsible for any errors in them.

"It is uncertain when the government will be able to resume its normal operations, including issuing daily swine reports," Cargill said in the letter. "We continue to evaluate other methods for pricing swine for purchase."

Top U.S. meat packer Tyson Foods (TSN)> told its hog suppliers on Thursday that it will use Urner Barry data for pricing starting on Monday.

The shutdown has elevated the profiles of companies like Urner Barry that sell data similar to that which the government normally provides and boosted their subscriber lists.

(Additional reporting by Christine Stebbins and Tom Polansek; Editing by Vicki Allen)