We are a couple months into 2022 and the commodity markets continue to be a wild ride. We're seeing a dynamic marketplace with good potential revenue opportunities on the horizon.
As of the date I am writing this article a couple hog margin crush tools that various advisors produce show potential margins averaging over $20 per head for the next 12 months. Now is a good time to revisit your marketing strategy and make any adjustments you may need.
The following are some key areas to look at when revisiting your plan:
What is your strategy as it pertains to taking forward pricing opportunities?
How much coverage do you currently have? When and how might you add additional coverage? What tools are available to you?
There are many tools in the toolbox that can be used to mitigate price risk including futures contracts, options, forward contracts, insurance products and others. It is important to know what is available, how the products work and use the best tool for the job.
What are your targeted returns?
Are you targeting a certain dollar per head or bushel, percentage return on investment or return on equity? It is always a good idea to have some sort of targets (goals) so you can measure what the current opportunities might look like relative to the goal. This may help you to decide when or how much coverage to add.
Have you revisited your cost of production?
Whether it's pigs, corn or soybeans it is a best practice to revisit this periodically. We are currently in a high inflationary environment and the cost of many items have increased substantially. Have you adjusted for increased input costs (feed, utilities, labor, fixed costs) when projecting what your cost of production may look like? How is your production throughput and will that impact your cost of production? Look at these factors impacting your cost structure so you can have a clearer picture of what a forward margin opportunity might look like.
Have a plan and revisit it periodically. Work with your key team members and advisors and make sure you are revising your costs if necessary. The marketplace can change quickly, so set targets and evaluate margin opportunities. While volatility can be frustrating to manage through and make decisions in, it can create opportunities for your operation.
Source: Chris Murphy, Compeer Financial, who is solely responsible for the information provided, and wholly own the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.