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Considering Risk Management Strategies Key

by 5m Editor
6 February 2009, at 8:32am

CANADA - The vice-president of live procurement with Maple Leaf Foods reports the recent economic turmoil has increased the level of interest in the use of the various risk management tools, writes Bruce Cochrane.

To manage risk swine producers can open a trading account with a broker and trade hog futures on the Chicago Board of Trade or currency futures or trade currency futures through their bank or they can use a forward contracting program where the basis, the currency and the hog price are all locked in.

Maple Leaf vice-president live procurement John Carney told those on hand for the 2009 Manitoba Swine Seminar, while this is a tool that may not be used all of the time, it's a tool producers should consider if and when they want to use it.

John Carney-Maple Leaf Foods

I think it starts with understanding your cost of production and your business objectives and those will change over time.

Producers, as we all know, have been through a very difficult time and for some right now it may simply be survival and trying to make it through some challenging markets.

I would say that it starts with having a clear idea what your objectives are and then assessing what are the risks your facing, primarily in currency, in hog price or protein and in feed prices, determining with your cost of production what price that you would like to lock your production in at if the price is available to do so.

But I think the focus more and more is on hedging a margin or a net return per hog as opposed to simply the price.

In other words looking at the feed as well as the hog price.

Carney notes, because there are many programs offered, it's difficult to know exactly how many producers are using risk management programs but participation in the programs offered by Maple Leaf is the highest that it's been in a number of years.

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