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Intimate Knowledge of Cost of Production Key to Risk Management for Hog Producers

By Bruce Cochrane

A farm management consultant with MNP suggests an intimate understanding of their costs of production are key to effective risk management for hog producers.
"A Whole Farm Approach to Risk Management for Hog Producers" will be among the topics discussed as part of Manitoba Pork Council's fall pork producers meetings, October 29 in Niverville and October 30 in Portage La Prairie.

Eric Olson, a farm management consultant with MNP, observes farmers by nature are price takers and as the size of their operations expand and the markets that influence their profitability become more and more volatile the economic risks increase.

Clip-Eric Olson-MNP:
The first thing, when we look at how to do risk management, the tools that farmers have, the first one we would say you need to look at is internally.
Producers to understand their cost of production and they need to identify what the magnitude of the risks are and the different pieces of that so what's the magnitude of feed increasing so they need to understand themselves first or their cost of production.

The tools they have to manage some of this, the first one is obviously contracting.
There's the ability to go out into the markets and contract grain, you have the ability to forward contract the price of hogs.
The plants in, as an example in Manitoba, you have an ability to preset your prices on your products.
The other piece for risk management, there's the government programs.
AgriStability is another program that producers use.

It's more of a whole farm effect obviously with AgriStability but, with there being some changes with AgriStability in the last year, the coverage that it gives is a lot lower than it was and it's really dependant on the profitability of your business in the past and as we know hog farming has had some tougher years in the last couple of years so their coverages in AgriStability have dropped quite a bit so it's not quite as good a tool as it once was.

Olson stresses it's critical for farmers to have a firm knowledge of their costs of production and bottom lines.

He says once they know those they can use the various risk management tools available to hopefully lock in some profits and make money going forward.

Source: Farmscape


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