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Risk Management Tools Ease Financial Crunch

19 November 2012, at 1:11am

CANADA - The president of Paragon Economics expects pork producers who have made effective use of risk management tools to come through the current downturn in profitability in far better shape than expected, writes Bruce Cochrane.

High feed costs fuelled by drought in the US mid-west has eroded the profitability of the North American pork industry.

Dr Steve Meyer, the president of Paragon Economics, told those attending Saskatchewan Pork Industry Symposium 2012 this week in Saskatoon we've seen significant losses, including a couple of high profile bankruptcies in Canada, but the industry is in better shape than had been anticipated.

Dr Steve Meyer-Paragon Economics:

The financial standing of producers in the US looks to be reasonably good. I think they've done a good job of managing risk over the past two or three years and so the staying power on the breeding herd has been better than we expected it to be and we might not see the wholesale kind of reductions in supplies next year that at one time we might have expected.

In the past, at one time, we had risk in the pork industry. We had risk on the price side and that was really it. When I started as a professional economist I didn't pay hardly any attention to the grain prices.

Now you've got all the risk of the grain prices plus the risk on the other side of hog prices and managing the risk of that margin is a key skill for producers at this point. If your listeners aren't very good at that now I'd really encourage them to get good at it. There's a number of resources.

Your local colleges and universities can offer you some of that. There are lots of brokers around that are very good at this and they can teach you how to go about it and help you do that so I think it's a skill that's going to be probably irreplaceable in the future.

Dr Meyer expects in the area of 97 million acres to be planted to corn next year and, with a normal yield, we'll get 14 and a half to 15 million bushels and feed supplies will be ample but it all depends on weather.

Meanwhile he recommends knowing where your feed supplies will be coming from this coming summer.

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