Understanding other links in the pork value chain also offers to enhance your negotiating knowledge and to allow you to anticipate trends and spot market opportunities in the marketplace. They turn the barn three times per year and calculate an average margin per hog sold each year. All hogs from the barn have been sold under contract to a packer of choice. The thinking was that pig prices and processor profits move in opposite directions so participating in both industries should reduce risk. A preliminary study of the concept reveals that the difficult year in 1998 for primary pork producers could have been eliminated by such a strategy but the strategy does not, at first glance, show great promise in reducing overall year to year variability.
Further study is warranted, however, as the concept is an intriguing one.
Other price risk management strategies involve hedging future cash hog sales and feed purchases with offsetting futures market transactions. The set of transactions hedges the farm against the risk of an adverse price change while forfeiting the opportunity to gain from an advantageous price change. For the farm, the chase is for the narrowest basis possible and usually involves seven or eight phone calls to prospective buyers of spot market hogs and knowledge of the intricacies of the spatial economics pork. Hiring, firing, breeding, feeding, weaning, cleaning, buying and selling are all decisions made daily by farm managers. These details must be looked after in a timely manner in order for the farm to prosper.