Use Good Times in Pork to Manage Risk for the Tough Stretches

After sharp ups and downs in lean hog prices of the past few years, not to mention producers’ ongoing struggle with sow losses, this year’s comparatively steadier rise in prices and lower breeding-herd mortality has been the industry equivalent of being able to exhale a bit.

As is the case in better times, it’s valuable to not forget the lessons of harder days and be sure our risk management strategies to protect against potential future losses are solid. Producers need information they can use in marketing their pigs, which includes expert insight into Chicago Board of Trade contract strategies as well as activity in other markets on the world stage.

The foundation is built through breeding and raising a consistent supply of healthy pigs as well as data analytics, so producers can better track their true cost of production at any given time.

“Just like you manage pigs in the barn, you’ve got to manage that position you have on the Board, as well,” added Carthage Veterinary Service (CVS) partner and veterinarian Doug Groth, DVM. He correctly explains that once a producer decides how to put their risk management strategies into place, they should continually monitor their position on each to ensure continued best outcomes.

I view risk management in three categories that you can use as a swine producer, and advise them to strike a balance among all three. First, there are the everyday cash costs, which include the price of production and receipts from delivering the finished product: A healthy market pig. It sounds simplistic to say knowing your expenses and income is necessary as a predecessor to wise spending, expansion, culling and more — but it never hurts to review the basics.

The second category is using price protection to try to secure the best return for your investment of time and money. This could be Board of Trade futures contracts or negotiating a price directly with your packer. Finally, there are government support programs and insurance designed to assist with managing the substantial risk that comes with farming, whether that’s crop insurance for those producers who also plant, or taking out a Gross Margin or Risk Protection policy on your pigs. The federal government assists with premium subsidies for two of these.