Financial Preview: Roller Coaster Ride Continues

US - This week's Financial Preview is presented by Mark Greenwood, Swine Industry Consultant, as Mr Meyer is traveling in Brazil and computer problems have prevented him from filing a Market Preview column this week.
calendar icon 30 August 2008
clock icon 4 minute read

Roller Coaster Ride Continues

After a client told me about his recent vacation to Las Vegas, my natural response was: “Why would you go to Vegas when being in the hog business is like being in Vegas everyday?” Never before in my agricultural career have I seen the level of volatility we are seeing today. The grain report on August 11 reported corn below $5/bu. and it appeared we had more corn than previously thought. Therefore, corn should continue to go down, right? Well, that logic is out of the equation with corn now over $1 higher than two and a half weeks ago and soybean meal is up over $50 a ton. Breakeven costs in a span of 15 workdays have increased by over $15/head! Just two weeks before the August 11 report, corn was $0.50/bu. higher and meal costs/head were $25-$30 higher. It seems a dull day when corn goes up only 10¢ and soybeans are only 20¢ higher. Even the overnight trade is volatile.

Hog Prices are Wild, Too - The cash hog market has been almost as volatile. Cash hogs hit nearly $90 about 10 days ago; today cash hogs are trading in the low $70s. Hog revenue has risen nearly $20/head in a two-week period, then fallen over $30/head in another two-week period. If you look at the pork cutout report over the last five reporting days, you can see the drop in value during this time period.

Volatility Here to Stay? – During this time of volatility, it is natural to move to a state of shock and freeze because it’s difficult to react. I have told clients that I think this state will become the norm. We must all become comfortable handling volatility and become more aware of all of the factors in the marketplace. I wish I could believe the market will correct itself, but in agriculture today, I think volatility is here to stay.

What to do? When I look at successful companies today, I think there are certain things they do better than anybody else.

  • They are a student of the business. They look at all of the factors in the marketplace and make sound risk management decisions. They rely on much more information than just a year ago. Agriculture is a global market, so it is vital to understand all of the factors in the world that can affect global agricultural production.
  • They stick to a sound decision plan and don’t second-guess themselves. This is probably the hardest thing to do in today’s market. Your decisions are not going to be right 100% of the time, but you must have a disciplined approach to making risk management decisions for your operation.
  • You must be good at production. This is like blocking and tackling in football – you must master the basics to win. Keeping your eye on production with this level of market volatility is still the most important factor to pork producers. If production is low, it can put you farther behind in a very tough environment.
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