Focused on Risk Management Objectives
Should a pork producer measure the success of a
biosecurity program by looking at the amount of money spent on vaccines?
The latter is only one part of the former. Vaccines are important, but
they certainly are not the definitive measure of success.
Similarly, should a pork producer measure the success of a risk
management program by the price received? The answer is no – and the
similarities between the two questions are clear.
Current discussions about price levels which could have, should have or
would have been reached remind me of ongoing discussions about pork
quality. In the 1980s and 1990s, the industry made great strides in
making hogs leaner. At the same time, some real concerns arose about
the quality of the lean in the new, high-efficiency hogs and their
carcasses. Some of those concerns remain today. Selection for one
trait, while improving the targeted trait causes improvement in that
trait, but may have deleterious effects on another.
Help Realign Priorities
If you are involved in the swine industry, the last couple
of months have been encouraging. Cash prices have been over $80/cwt.,
carcass, for the last month (Figure 1) and producers are finally able to
improve their balance sheets. The industry needs an extended run of
profits to get back to where it was in 2007. Not only will it take some
time to repair the economic damage of the past two years, there were
many production system items placed on the back burner due to a lack of
cash. If profits continue – and I think they will – I believe we
will see many production systems looking at the following investments
over the next 12 months:
• Sow Parity – The last couple of years, producers
have retained sows for more parities. In many productions systems, the
sow parity average was over 4. With cull sow prices over 50 cents/lb.,
you can replace those older sows with gilts and bring the average parity
of your sow herd back to a more typical level. Down the road, this will
lead to better production in your sow herd.
• Human Resources – I think many companies stretched
their people resources to their limits over the last two years. In
visiting with many companies, we have learned that people could do more
if asked; but, now may be a good time to invest in these key employees
(e.g., training, bonuses), which will likely pay dividends down the
road. There is always a limit to how much you can push employees.
Investing in human resources should be on the list for many production
• Fixing and Repairing – Many companies put any major
repairs on existing buildings on hold. Because of limited cash, many
production systems spent only the bare minimum to maintain their
buildings. There will be many gates, feeders, crates, slats, etc. that
need replacing across the industry. As balance sheets continue to heal,
equipment suppliers will likely be busy, as will businesses in new
Added to U.S. Exports
USDA’s Foreign Market Development (FMD) program and
Market Access Program (MAP) have had a positive and significant impact
on U.S. agricultural trade. This was the finding in an independent
study by HIS Global Insight, which evaluated the effects of the FMD and
MAP programs administered by USDA’s Foreign Agricultural Service
(FAS). The study focused on the period from 2002 through 2009. By
2009, the report concludes, the increase in market development spending
since 2002 increased U.S. export market share by 1.3% and the annual
value of U.S. agricultural exports by $6.1 billion. The study concluded
that increased investment in market development resulted in the
• For every additional $1 expended by government and industry
on market development, U.S. food and agricultural exports increased by
• Export gains associated with the programs increased the average
annual level of U.S. farm cash receipts by $4.4 billion and net cash
farm income by $1.5 billion. At the same time, U.S. domestic support
payments were reduced by roughly $54 million annually due to higher
prices from increased demand abroad, thus reducing the net cost of the
Risk Focus Of Pork Expo Seminar
To learn more about making wise investment decisions in
these times of volatile hog markets, attend the financial risk overview
at the 2010 World Pork Expo in Des Moines, IA, by Thomas Clark,
associate director of Commodity Products for CME Group, including
Chicago Mercantile Exchange.
Clark’s seminar, “Risk Management for Pork Producers,” will focus
on the importance of risk management in operating a successful hog
operation. Clark will present a brief overview about hedging investments
with futures and options, discuss how producers can develop a marketing
plan and explain educational training tools producers can use to
leverage their risks.
“I hope producers that attend the educational seminar at World Pork
Expo will walk away with a basic understanding of why risk management is
important to their financial future,” says Clark. “The markets are
different now than they were 10 years ago, and the way previous
generations ran their operations and managed ‘the bottom line’ may
not be the best way for our generation to do business.”
June 8-10, 2010"Sustaining Animal
Agriculture: Balancing Bioethical, Ecnomic and Social Issues."
Jefferson Auditorium, USDA's South Agriculutre Building
For more information contact: Dave Stender by
phone (712) 225-6196, fax (712) 225-3173 or e-mail email@example.com.
June 9-11, 2010: World Pork Expo, Iowa State
De Moines, IA;
For more information contact: www.worldpork.org.
June 23, 2010: Advanced Swine Reproductive
Management Workshop Lifelong Learning Center
more information contact: Dave Stender by phone (712) 225-6196, fax
(712) 225-3173 or e-mail firstname.lastname@example.org.
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