Measured Approach to Risk Management Recommended Heading Toward Summer

By Bruce Cochrane

The director of risk management with h@ms Marketing Services is recommending a measured approach to risk management heading toward the summer to protect profitability.

Over the past two weeks, in response to the latest USDA Hogs and Pigs Report, which indicated losses due to Porcine Epidemic Diarrhea will be less than previously feared, prices paid for live hogs on both the cash and futures markets have fallen about 10 percent from the record levels earlier this spring.

Tyler Fulton, the director of risk management with h@ms Marketing Services says, whether you're talking about the cash market situation or what's being offered in forward prices or on the futures market, by all accounts prices remain extremely volatile.

Tyler Fulton-h@ms Marketing Services:
I think what producers need to be looking at is a measured approach to risk management.

In this instance it's nice to be in a situation where we're actually trying to maximize profitability as opposed to minimize losses.
Really, by any account, I think it's unlikely that we could see such a significant change that would really impact profitability to the point where we would be looking at negative margins any time in the next six months.

That said the upcoming growing season is going to be a big risk on the feed side as it is every year.

We're really reliant on how big the North American crop is for feed grains and for soybeans and canola and so there's no doubt that producers should be considering taking positions over the course of the summer that help them manage that component of their price risk.

Fulton says two weeks ago we were sitting at record price levels.
He says, while the slide has definitely affected profitability, there's no doubt that margins for producers are still very good.

Source: Farmscape