The spot market for weaned pigs has been at $60/pig for the past 2 weeks, a price pig sellers haven’t seen since last February and early March. This suggests a lot of optimism by producers for the late spring and summer markets.
This past week I was in Columbia, Missouri to speak at the Passion for Pigs conference. I shared the podium with Lee Fuchs from the St Louis office of the Farm Credit System. He reported that there is a lot of optimism by producers for the coming year. However, he also shared data that suggested many producers have hedged this optimism, with some producers having more than 50% of all their hog production for 2012 hedged or otherwise forward contracted.
This extensive use of forward contracting for both inputs and sales during a profitable production window reflects the changing industry. In past cycles, producers would have remained uncontracted so as not to miss the ‘high’. Today, producers sell pigs on margin and when their margin targets are met, they buy inputs and sell pigs. They remember all too well the lessons from 1998-99, 2002-2003 and 2008-09.