The general manager of Sask Pork is confident a program being developed to address market volatility will allow pork producers to make more effective use of hedging to lock in future hog prices.
A new hedging proposal, being recommended to government by the Canadian Pork Council to help pork producers address market volatility, will be discussed next week in Saskatoon as part of Saskatchewan Pork Industry Symposium 2011.
Saskatchewan Pork Development Board general manager Neil Ketilson says, while farmers can hedge both currency and price, many have been reluctant to do so.
The problem that the majority of farmers face is the market place tends to be very volatile and therefor when they get margin calls they have to put up money that day for the call otherwise they get closed out of the market and they wouldn’t be able to realize on their price.
Therefor farmers have tended not to use that mechanism as much as they should have simply because they don’t know how money they’re going to need and there’s rally a lack of knowledge between them and the banker in terms executing that trade to know that they come out at a zero.
Nobody ends up losing money on this thing.
This program basically takes that away so that farmers would be enabled to lock in prices through a service provider.
That service provider would get a guaranteed amount of money guaranteed by the federal government so they could execute trades, take them from the point that the producer puts on the trade at a fixed amount of money until they execute and the final transactions are made and the farmer gets paid.
To the government it really means very very little risk.
As long as the trades are executed as they should be, you always come out at a zero market so risk to government, it’s a very very low cost to the government but it would really enhance the industry a lot.
Ketilson says there are still details to be worked out so time lines for introduction are difficult to predict but he hopes it will be soon.
Source: Farmscape.Ca
