With ongoing financial losses being recorded in pork production today, the objective often is to minimize losses. That makes maximizing the price you receive for your hogs and minimizing feed costs and inputs top priorities. Effective planning and risk-management strategies are increasingly important to meeting these objectives.
But to do this, you need to maintain an effective and up-to-date marketing plan as well as an understanding of your personal risk tolerance. Of course, a risk-management strategy should be an integral part of your entire business plan and must address your business’ specific needs.
“Because of a historically tight stocks-to-usage ratio, the market will be sensitive to changing conditions in the corn crop,” says John Harangody, CME group director of commodity products and services. “Discerning market direction and timing can be difficult, and options-based strategies may work well under these conditions.”
As the summer growing season and harvest progress, many factors can come into play that have bearing on input prices. “With prices locked in, producers are able to smooth out some of the bumpiness that volatility can cause,” Harangody says.
But risk-management strategies are important regardless of the marketing cycle.
“Volatility may create additional pricing opportunities that can be captured by employing advanced strategies,” he says. “Various hedging and risk-management tools have been developed for changing market conditions.”
During uncertain times, using options in a risk-management strategy provides flexibility to deal with such conditions.
“Buying corn calls, for example, would grant the owner the right, but not the obligation, to own corn at a fixed price in the future,” Harangody explains.