Only about two percent of Manitoba hog producers protected themselves from the worst of the price crash this past winter using forward contracts.
As prices dropped through the summer, few farmers believed they would continue to plummet, said Perry Mohr of Manitoba Pork Marketing Co-op Inc.
While many of the same farmers use risk management tools such as deferred delivery contracts for the grain they produce, many shy away from protecting their hog production against price risk.
“There seems to be a reluctance by producers to forward contracting,” said Mohr.
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He was responding to comments from an American hog marketer Walt Hackney, who encouraged producers to create their own price discovery systems by forward contracting.
Manitoba Pork has offered risk management tools since 1995. Prices had troughed in November 1994 and producers were eager to try out forward pricing, recalled Mohr.
“It was almost like a new toy at that time,” he said.
But two years of strong cash prices killed some of the enthusiasm for the contracts, said Mohr. Some producers “got cold feet” when they locked in forward prices, only to see cash prices rise higher.
However, Mohr predicts a resurgence of interest in risk management.
“It is, in our industry, the new buzzword.”
Most lenders are encouraging highly leveraged hog farmers to take part in risk management programs.
“If you can lock in a profit, you can never go broke,” said Mohr, explaining the price crash brought the saying to life for many farmers.
The co-op’s challenge is to make sure farmers get enough market information to make sound risk management decisions, said Mohr.
