Canada's pork industry to explore feasibility of hog hedging program

Friday, July 10, 2015

by SUSAN MANN

The federal government is giving the Canadian Pork Council $169,530 to study if it’s feasible to develop a hog hedging program offering price stability for farmers.

Bill Wymenga, Canadian Pork Council vice-chair, says the government money “is just to fund the project looking at the feasibility of what would work. We want to find a model that would work for hedging for our producers across Canada.”

Lambton-Kent-Middlesex MP Bev Shipley made the funding announcement Friday at Ontario Pork’s office in Guelph on behalf of federal Agriculture Minister Gerry Ritz. The money comes from the federal government’s AgriRisk Initiatives program. It provides funding for research and development, implementation and the administration of new risk management tools for farmers. The program is part of Growing Forward 2, the national agricultural policy framework.

The federal government’s release says the council will study the impacts of hog market price fluctuations on farmers and “explore the potential of developing a hog hedging program to mitigate that risk.”

The project will include consultations with farmers, financial institutions, packing plants and organizations that provide risk management services to farmers.

Wymenga says hedging is locking in “a future price because you think the price they’re offering in the future is a price you can make money at or at least you would limit the downside in the market. We have a market that fluctuates quite a bit.”

Wymenga says to mitigate risk “we can forward price according to what the futures say on the Chicago Mercantile Exchange.” Doing that requires “a fair bit of financing. You have to put up what’s called a margin account and for one contract of hogs it’s US $1,300 or close to CND $1,600.”

Covering the margin accounts for 30 per cent of the hogs across Canada would require about CND $75 million in funding, he says. The amount of money required for hedging is “potentially a barrier for why some producers don’t want to do that.”

Wymenga, who’s also an Ontario Pork director, says Ontario Pork has a forward contracting program for its marketing members “but we also put limitations on the program just because there’s the potential there’s a larger requirement for funding than the money we have available.”

If there’s financing from the government, “which is what we want to look at, that may provide further opportunities to lock-in certain pricings,” he notes.

He says he doesn’t have information on when the project will be completed. It will start now as the council has officially been notified of the funding it’s getting. BF