I would like to do something a little different than I have done in the past for this writing.
I would like to relay three different discussions I have had with three individuals at different times. At the end I will provide a personal comment.
The veterinary that visits our farm on a monthly basis has made us aware of a new virus to our country that is quite devastating to the swine industry. It has become known as PEDv. The virus first appeared in the USA about 18 months ago. The virus is common in China and is thought to enter our country from China. Exactly how that occurred is not known. The disease causes all the animals on a farm to have a high fever and severe diarrhea. Nursing piglets have nearly 100 percent mortality. With proper management, things return to normal in about four weeks. Weaned pigs and adults recover within a week and continue with only reduced daily gain and reduced feed conversion. Our farm has a PEDv action plan but has so far escaped the disease.
I discussed the plight of the dreaded disease to pork producers with the lender we use in our operation. There I learned they were extending their lines of credit to producers for two reasons. First of all, for loss of production from the baby pig death loss. Secondly, the extension of credit is for the producers to be able to fund their hedging accounts. In recent history producers that prospered are those who learned to hedge both their inputs and outputs. The problem the past few years has been extremely high feed costs. So the savvy individuals that successfully hedged their inputs (feed) and outputs (butchers) made a profit.
I noticed that June hog futures peaked on March 18 at the price of $1.33 a pound. I asked my broker what was influencing the market. What was the driver that was creating the extremely high prices? I learned there was a perceived idea there would be a shortage of pork due to the many herds that were being affected by PEDv. Therefore fund managers were buying hog futures to profit from the shortage thinking the price would rise due to the perceived shortage.
My thoughts are that while I like to make a profit, I do not like the extreme prices we are seeing now. I think most pork producers would be more satisfied with more reasonable prices. If we are hedging properly, we will not make any more money in the current situation. It just goes through our bank account and back to margin calls (the funds). All this due to a perceived shortage that will not be nearly as severe as perceived. The thing that gives myself and other producers of agriculture commodities the greatest satisfaction is to be involved in producing nutrition at a reasonable price for the consumer.
My advice is to watch for sale promotions when buying food. Hopefully your fund manager made some profit for your account during this situation. The best cure for high prices is high prices. Things will eventually return to normal, and food prices will become more reasonable.
Steve Cowser is a pork producer in the Bradford area.