Active Participation in Risk Management Advised

by 5m Editor
11 February 2011, at 12:22am

CANADA - The director of risk management with [email protected] Marketing Services is encouraging hog producers to forward price a large portion of their production and to secure feed supplies to manage the volatility in both hog and grain markets, writes Bruce Cochrane.

The cash market for hogs has trended steadily higher over the past five weeks.

Tyler Fulton, the director of risk management with [email protected] Marketing Services says the futures prices have consistently suggested we could expect a better than average rally over the first quarter of 2011 and the cash market has met and even surpassed those expectations but, he concedes, because of rising feed costs profitability has not changed.

Tyler Fulton – [email protected] Marketing Services:

Intuitively you would think hog prices are going up, you're going to see some improvement in profitability but in reality we've probably just kind of kept pace with what feed costs have done.

With the corn market effectively doubling in price over the last seven or eight months that's been an undeniable force in putting pressure on profitability.

Quite simply we've needed the gains in the cash market and for that matter in hog prices to simply maintain profitability at what I would say is generally pretty good given the volatility that we've got.

This is really a driving factor In the long term.

Feed costs are the primary factor that is moving the hog market.

The higher feed costs go quite simply the higher that pig prices need to be in order to maintain a steady supply so in the long run it's definitely the single biggest factor that's driving hog markets.

Considering the good profitability right now and the huge amount of volatility in both input costs and hog prices, Mr Fulton recommends producers be very active in risk management.

He recommends pricing a large percentage of production at current prices and securing feed supplies because feed is where the major risk to profitability is going to come from.

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