Forming a hog marketing plan
An exchange at a recent session on profit management in the hog industry was the type most market advisers have heard from farmers.
Leading a session during the Saskatchewan Pork Industry Symposium in Saskatoon was Victor Phillips, of Didsbury, Alta. He was talking about locking in prices by using the futures markets and forward contracting.
But a producer in the crowd said that if a person had locked in a hog price last winter before the hoof-and-mouth crisis in Taiwan caused a rise in world hog values, he would have left money on the table.
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And he is right. Good marketing plans often don’t catch peak prices. But they also avoid big price dips.
And that increases a farm’s stability and ability to plan.
Phillips began his presentation as most marketing advisers do, by noting prices are difficult to judge as good or bad if you don’t know your costs of production.
A marketing plan must include business costs and expectations of return, or profit.
He said hog farming is a lot like most manufacturing enterprises – you put inputs through a process to create output. The profit is the difference between what it costs to buy the inputs and the price received for selling the output.
And producers might be surprised to find these prices are not uncontrollable, Phillips said.
Through the year, portions of inputs and production can be locked in at levels that a marketing plan deems reasonable.
On the output side, hogs can be priced using the Chicago Mercantile Exchange. Hog marketing boards in each of the prairie provinces also have forward contracting programs.
Of course, the natural cycle of livestock markets means there will be times when losses are virtually guaranteed. But a marketing plan should have warned you to adjust production in order to weather the storm.
A marketing plan will reduce the volatility of an operation’s finances and improve average returns. It is a long-term strategy, but gradually the positive results will accumulate.
The strategy should also reap another reward. Improved income stability should increase the confidence of creditors and investors.
Developing a marketing plan and learning how to use futures markets are not easy tasks. They require commitment, time and study.
Two or three-day marketing courses are often offered through provincial agricultural extension offices in the winter. They are a good starting point and will provide reading material and tips on how to get started.
