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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. 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

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  1. Managing Both Market Risk and Feed Cost in Swine Production Margin Maker: Swine Edition Shane Ellis Extension Livestock Economist Iowa State University

  2. 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

  3. Hog Margin Maker Feb Hogs Mar Corn Hog-Corn Margin 9/17 1/8 $109 $67

  4. Presentation Outline • Lecture • Examples • Resources • Computer simulation

  5. Livestock Market Risk • Cash market • Forward contracts • Futures hedge • Options • Put purchases, Fence hedge, • Livestock Risk Protection (LRP) • Livestock Gross Margin (LGM)

  6. Corn Price Risk • Short term storage • Cash spot purchases • Futures hedge • Options

  7. 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

  8. 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

  9. Distribution of Price Risk

  10. Futures Trends

  11. USDA Report Summaries

  12. Delivery • Extension Field Staff • Iowa Pork Industry Center at ISU • Iowa Farm Bureau • 5 Workshops • 55 participants • 2 Student classes

  13. 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

  14. 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

  15. Thank You Questions? shanee@iastate.edu www.econ.iastate.edu/prosci/ellis www.iowabeefcenter.org

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