PORK RISK MANAGEMENT STRATEGIES FOR THE ALBERTA HOG INDUSTRY

Abstract

This study simulated and evaluated several different types of marketing strategies from 1981 to 1995 and 1990 to 1995 in the Alberta pork industry. The various types of strategies analyzed included cash marketing, routine and selective hedging, routine forward contracting, routine window contracting using either a confidence interval or a projected break-even cost to set the window floor, routine minimum price contracting and selective window contracting. No one marketing strategy stood out as superior in all measurement criteria; increased mean revenues, lowered the standard deviation of revenues, reduced the frequency of large losses and reduced the maximum loss in absolute value. There are two main reasons as to why this was so. In several circumstances, such as the periods of late 1988, early 1989 and late 1994, early 1995 feed prices sharply increased while hog prices sharply declined. Some marketing strategies allowed for the hog price to be somewhat controlled, but did not provide protection on the input side, that is feed prices. Other strategies that used window contracting or minimum price contracting did allow for the eventual price received to cover the projected break-even price, but were expensive in doing so due to the cost of price insurance. This study provides a framework in which to develop shortterm window contracts that are fair to both the contract provider and pork producer.