MARIAPOLIS, Man. – Between sips of coffee and bites of oatmeal cookies, five young producers huddle over the day’s Chicago hog prices torn out of the newspaper and predict what a new contracting program could mean for their operations.
At another table, three hog farmers in their late 50s sit back and discuss the “what if’s” – “what if I can’t deliver on my contract? What if this is too much risk? What if prices go up after I’ve contracted?”
About 80 farmers from communities south of Brandon gathered here last week to chew some fat on the hog marketing board’s new forward pricing option.
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Starting Feb. 7, producers will have the choice of taking the traditional pooled spot price for their hogs on delivery, or locking in a price up to 12 months in advance.
Perry Mohr, sales manager for Manitoba Pork est. is traveling to communities across the province to explain and promote the program. He told farmers the program “will give you an opportunity to … become a price maker. It will increase your marketing options.”
Mohr sees the program as a way for producers to stabilize their incomes. He showed producers a graph comparing pool prices for the past four years to a stabilized price based on contracting half of production six months in advance. The graph showed producers would have missed the peak prices, but would have also escaped the sharp dips.
“Somebody with a little bit of market information or market savvy is going to do better than that stabilized price,” Mohr said. The program will also offer producers market information needed to make decisions such as price trends, market outlooks and U.S. cold storage information.
The program is the first of its kind in Canada. Producers will initially be charged about 55 cents per hog to run the program.
For this price, Manitoba Pork will act as a broker, giving current market information and setting contracts for prices based on U.S. futures on live hogs on the Chicago Mercantile Exchange. The prices will be converted to reflect Manitoba’s formula pricing system.
The board will offset its risk by taking hog and currency exchange hedges on the CME.
The 55-cent price looks good to Gerry Demare of Somerset. Along with his father and brother, the 30 year old has been upgrading the family hog and grain operation.
They’re looking into using a broker for selling grains, but find brokerage fees for hogs of $1.50 to $2 per head too high.
Demare, who sells close to 5,000 hogs a year, said he likes the program’s concept, but he doesn’t think he’ll use it right away. Rather, he’ll look at the futures information and compare it with spot prices in upcoming months.
Demare said using the program will be more work than simply delivering hogs for the spot price.
Like many producers at the meeting, Myrtle Vanderburgh of Baldur, Man., has the low hog prices of November on her mind. In the biggest market crash in 20 years, prices fell from 68 cents a head to 43 cents.
She said she’ll use the program if it guarantees a high-enough price, like 70 cents a head.
Mohr said had the program existed last March, producers could have forward-sold their hogs for 74 cents a head in November.
