The Canadian Pork Council is exploring the possibility of using forward pricing programs as a risk management tool, but are concerned not all producers will have enough on-hand cash needed for hedging.
“With hedging, you need to have cash for the calls and so on, security money,” explained council chairman and Manitoba producer Rick Bergmann. “With the hedging program you need to have extra funding. To date that’s been a bit of a sore point or a challenge for producers.”
Last week the federal government announced it would provide the CPC with up to $169,530 to explore the feasibility of developing a hedging program that would offer price stability and address the cash flow needs of Canadian hog producers.
“Our government is proud to support the hog industry’s efforts to analyze the potential of new instruments, like a hedging program, that would help protect producers against fluctuations in market prices,” said Bev Shipley, an Ontario MP and chair of the Standing Committee on Agriculture and Agri-Food. “Investing in programs to reduce risk adds stability to the hog sector and will help boost competitiveness and profitability.”
Bergmann said factors like disease, currency fluctuations and international instability all affect Canadian pork producers, putting them at risk.
American pig farmers use hedging on the futures markets to a far greater extent than Canadian producers, he added, noting one goal of the study is to determine why, while also gauging interest at home.
Last year the Western Livestock Price Insurance Program — a three-year pilot project many believe will become permanent — was launched, offering cattle and pork producers the opportunity to guard against price fluctuations.
But the provincial and national pork councils have been critical of the program.
“I guess the premiums on that livestock insurance are an issue where you’ve got to pay too much to get too little,” said Bergmann. “That’s why the hedging concept has really kind of taken hold in a lot of different provinces as far as a good option, not saying that producers can’t use… the insurance, but again, it’s creating options for producers to pursue.”
The study won’t begin to yield results officially until at least September, but the chairman doesn’t expect any big surprises.
“I think what we want to do is confirm what we think we know already, but we want to do our due diligence,” he said, adding he expects to find that a lack of cash will be the barrier most producers face when it comes to using hedging as a risk management tool.
The next step will be to look at how producers can access additional funding, something Bergmann hopes the federal government will assist with.
“The federal government has been a very significant part of our industry till now,” he said. “And we anticipate that it would want to continue to be part of that in the future.”