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Managing Both Market Risk and Feed Cost in Swine Production. Margin Maker: Swine Edition Shane Ellis Extension Livestock Economist Iowa State University. Objectives. Educate in price protection strategies Provide resources and examples Emphasis protecting the hog-corn margin

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managing both market risk and feed cost in swine production

Managing Both Market Risk and Feed Cost in Swine Production

Margin Maker: Swine Edition

Shane Ellis

Extension Livestock Economist

Iowa State University

objectives
Objectives
  • Educate in price protection strategies
  • Provide resources and examples
  • Emphasis protecting the hog-corn margin
  • Analyze risk distribution
  • Practice application of strategies
  • Customize to decision making process
hog margin maker
Hog Margin Maker

Feb Hogs

Mar Corn

Hog-Corn Margin 9/17 1/8

$109 $67

presentation outline
Presentation Outline
  • Lecture
  • Examples
  • Resources
  • Computer simulation
livestock market risk
Livestock Market Risk
  • Cash market
  • Forward contracts
  • Futures hedge
  • Options
    • Put purchases, Fence hedge,
  • Livestock Risk Protection (LRP)
  • Livestock Gross Margin (LGM)
corn price risk
Corn Price Risk
  • Short term storage
  • Cash spot purchases
  • Futures hedge
  • Options
simulation assumptions
Simulation Assumptions
  • Wean-to-finish swine operation
  • 2,400 head capacity
  • 5.5 month finishing period,
  • 2 full turns: Jan1-Jun15, Jul1-Dec15
  • 25,000 bu. of corn per turn
simulation
Simulation
  • Based on actual year
    • Adjusted to reflect current price ranges
  • Wean pig, non-corn costs assumed fixed
  • Time stops
    • Jan 1, Apr 1, May 15, Jun 15
    • Jul 1, Aug 15, Oct 1, Dec 15
delivery
Delivery
  • Extension Field Staff
  • Iowa Pork Industry Center at ISU
  • Iowa Farm Bureau
  • 5 Workshops
    • 55 participants
  • 2 Student classes
future plans
Future plans
  • Expansion of scenario to 2 years, 4 turn scenario
  • Multiple year repetition
  • Additional tools for gauging risk exposure
  • Cattle crush version
    • Fed cattle, corn, feeder cattle
summary
Summary
  • Simulation adds education, experience, practice and entertainment
  • Simulation builds confidence and interest in risk management strategies
  • Participant competition and interaction reinforce material presented
  • Most participants ask when they can do it again
slide26
Thank You

Questions?

shanee@iastate.edu

www.econ.iastate.edu/prosci/ellis

www.iowabeefcenter.org