The right side of the decimal

You have options to protect your future revenue whether you are a hog producer, or your livelihood depends on the pork market.

 

Joseph Kerns, National Hog Farmer

Apr 08, 2019

 

The elephant in the room for the entire protein industry is, of course, African swine fever and its impact on prices. Much has been written and postulated in this forum about how high and when prices peak.

 

The truth is simply this: nobody knows. We can identify the parameters and make our best guesses, but they are little more than that (guesses) at this point. It is against this backdrop of the unknown that I would like to encourage all market participants — producers and allied industry — to consider the largesse the market has provided and act judiciously as we roll forward. To that end, I have a couple observations and thoughts to share.

 

First, as producers, we need to change our concept of “normal.” This is anything but a normal market. Historical references of spread values or seasonal tendencies should be thrown out the window. We are not in Ordinary Time, we are in Special Time and need to recognize the landscape as different than what the rear-view mirror may have hinted for future events. I understand the desire to establish hedges at today’s favorable levels and your banker is likely to encourage the same if your balance sheet can tolerate the potential margin calls. I am encouraged by the willingness of our primary lenders to assure producers that we-got-your-back when it comes to margin money. I do not see a financial crisis on the immediate horizon given the attitude and commitment of our industry bankers.

 

Second, I am a huge fan of options in this environment...

 

Next, I want to encourage those who derive a significant stream of earnings from the industry to consider what happens to your cash flow in the event we have a catastrophic event that impacts the United States...

 

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