Please realize that much of what you think you might know about farming may not be correct, or what other people know about farming.
Pigs don't need to be on the Atkins diet.
Ethanol is a big government boondoggle that is a huge waste that only survives because of government mandate and subsidies, both a government intrusion into the free market and antithetical to conservatism.
Please remember that the next time you claim to be a conservative.
The reason those packers who will deal with small farmers like to purchase hogs on contract rather than at auction is that it allows them to control carcass quality. A lean carcass (with the fat there is being firm) is worth a boatload more than a fat carcass with soft fat; trust me, your father in law will confirm this.
The reason small farmers like to raise hogs on contract rather than for auction is that it provides greater price stability. Before a farmer has his hogs on his finish lot, he has some bargaining leverage; once they're on the lot he doesn't. A cattle grower has some leeway in the timing of the sale of his finished beef, but a hog starts to drop in price per pound after about 240 lbs.
The fact that your father in law complains about the low auction value at a time when hog prices are at historic highs pretty much proves my point.