Saskatchewan’s new forward contract program for hogs eliminates hassles associated with using the futures market to lock in prices.
The new program, operated by Mitchell’s Gourmet Foods Inc., allows producers to lock in prices up to 12 months into the future. It was launched this fall, replacing a program run by SPI Marketing Group, a Saskatchewan hog marketing agency.
“The Mitchell’s program is cost free, which the SPI program was not, and it also offers producers a range of pricing options that I think are more flexible for them,” said SPI official Patty Martin.
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“The producer doesn’t have to come up with any extra cash when he takes out a price. It’s simply built into the price he is booking.”
Martin said SPI got out of forward contracting because it was too costly to administer.
Only about six percent of the province’s producers were involved in the SPI program, which ran for about 31Ú2 years.
Mitchell’s program gives producers three pricing alternatives:
- Fixed pricing Ð a range of prices available based on specific delivery times and volumes.
- Blended pricing Ð a simple or weighted average of a number of prices into the future based on a selection of sequential or selected months.
- Target pricing Ð where a producer can register a specific price for a specific delivery period.
Contract sizes are in units of 20,000 kilograms, dressed weight, which is the equivalent of about 230 hogs. Producers who can’t fill a contract on their own can pool their hogs with other producers through SPI.
“Even though it’s a Mitchell’s-backed program we work very close with SPI,” said Ray Snitynsky, Mitchell’s director of risk management.
“Very few producers can deliver 230 hogs in a day.”
Snitynsky said there are advantages to having a packer-based forward contracting program instead of what SPI used to offer.
“Since it’s a procurement program they’re willing to provide more competitive prices versus what we used to run, which is just a strictly service program.”
