If there’s a way for a national-level hedging program to help Canadian hog farmers limit their exposure to hog price volatility, the national hog industry body aims to find it.
The Canadian Pork Council on Friday announced it had picked up $169,530 in federal funding for a feasibility study on developing such a hedging program.
“This project will explore the feasibility of a program that can mitigate the risk of margin calls, so that hedging becomes a useful and used business risk management tool,” council vice-chair and Blenheim, Ont. farmer Bill Wymenga said in a release.
Producers theoretically have access to hedging on the futures market, but there are practical barriers to doing so, the CPC said Friday.
Topping the list of barriers, Canadian market observers have previously pointed out, hog farmers aren’t known to have the available credit or cash on hand to meet margin calls on futures markets. Lenders who typically deal with hog producers may also balk at financing hedging, on top of farms’ operating and capital costs.
The CPC-led study is expected to gather statistics on current forward-pricing program opportunities in various markets in Canada, and on the “anticipated demand” for such a program.
The council, with its provincial counterparts, also said it “hope(s) to gain a greater insight into why Canadian farmers utilize hedging and other risk management strategies to a lesser extent than their U.S. counterparts.”
In all, the council said, its project’s objective is to “develop a structure for a program to mitigate the risk of margin calls that would complement existing risk management tools.”
The feasibility study will also involve “consultations” with farmers, financial institutions, pork packers and risk-management organizations, for their assessments of the risks in hedging.
CPC chair Rick Bergmann said he’s pleased to see the project moving forward, given the “cyclical nature” of hog markets.
“Developing and having producers’ employ effective risk management has long been a topic of interest and priority for governments and the hog industry,” he said.
The federal funding for the study will come from Agriculture and Agri-Food Canada’s AgriRisk Initiatives (ARI) program, which was set up to back development of new risk management tools in the ag sector.
“Investing in programs to reduce risk adds stability to the hog sector and will help boost competitiveness and profitability,” Lambton-Kent-Middlesex MP Bev Shipley, chair of the House of Commons’ standing ag committee, said in the government’s release Friday. — AGCanada.com Network