With the strength in hog futures’ prices experienced since USDA’s March Hogs and Pigs report revealed a shrinking U.S. swine herd, pork producers have opportunity to book profits.
In addition to lower-than-expected number of animals kept for breeding and farrowing intentions reports, corn prices remain relatively tame. “It improves the bias producers have and therefore may move the target levels for future marketing up,” says Kent Bang, regional vice president, Bank of the West, Omaha, Neb.
Bang points to two factors as reasons to protect profits: the liquidity shortage that many producers face and the chance of a quick change in market outlook such as the Novel H1N1 influenza outbreak experienced last year. “The strategy stays the same with the exception of those who remain bullish that the market will continue to climb. I still believe some option strategies make sense.”
Bang estimates that there is a potential $35 - $40 margin over the next 6 months which producers would not want to miss. “The hog market is so good, I would really want to lock in some of those profits, he says. “I think historically we have to be in a range that is in the top 10 percent at that level."
Bang believes that with the plentiful grain outlook, rising corn prices are not an immediate concern. “There is a lot of weather market forces between now and harvest, but based on what I see today, I wouldn’t want to own a lot of corn going into harvest, physical ownership or paper ownership.”