World Pork Expo: Impressive attendance, hedging key for producers

Having a solid hedging program as a part of an overall risk management plan can really help avoid some of those “bad plays.”

June 19, 2024

3 Min Read
National Pork Board

By Nic Rue, Compeer Financial

It’s hard to believe it’s been two weeks since World Pork Expo, which saw impressive attendance despite being a two-day show. Overall, producers are in a much better place than last year. However, moods have been dampened by the slide in hog prices since April.

In April, the futures curve indicated a profit per head of about $15 for the next 12 months. As of June 17, it is likely around a breakeven to a $5 loss. This is slightly worse than what was projected in January of this year.

My pessimistic side begins to think that the collective mood at World Pork Expo might have been better if we didn’t see futures at $110. However, as I was reminded by a good producer, “This is why we hedge.” He was absolutely right. Without the run-up, there would have been no opportunity to hedge in the additional margin.

Consistency remains the key to every hedging plan. Many producers saw hedging losses in 2014 as hog prices soared to all-time highs. However, they were able to make it back and them some when markets declined in 2015. Over the past five years, we have seen hedging add an average of $2-3 per head.

Tom Brady was recently inducted into the Patriots Hall of Fame. During the ceremony, it was noted that in addition to all of his great plays, the best characteristic about Brady was that he avoided bad plays that put his team in a position to lose. Brady led the league in fewest turnovers, negative runs and offensive penalties. Having a solid hedging program as a part of your overall risk management plan can help avoid some of those “bad plays.”

In 2023, we saw hedging gains average almost $10 per head. However, a number of producers had hedging gains in excess of $15 per head. When combined with a competitive cost of production, a handful of producers actually saw breakeven levels of profitability in 2023, which I am sure any producer would consider a real win in what was, for most of the industry, a year of record losses.

Th important piece is to link your hedging plan with your balance sheet to understand the working capital position and your ability to handle further economic adversity. Working capital remained depressed at end of Q1 2024 at $712 per sow, as we saw operating losses through March and margin calls with hog futures running up at this time. The less working capital a producer has, the more proactive they should consider being to minimize the risk, especially with LRP or LGM products that don’t limit your upside potential. Work closely with your risk management advisor to come up with or reinforce your game plan.

Despite the recent decline in prices in 2024, there have been opportunities to hedge in profits, and I am optimistic there will be others. The key will be to remain poised to lay in hedges as the margins hit your target levels consistent with your plan. 

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