Joseph Kerns at Alltech's International Forum on Pork Production - a Tribute to Des Cole
Joseph Kerns of International Agribusiness Group is a risk management consultant with 25 years of experience in the agriculture industry. He kicked off the opening session at Alltech's International Forum on Pork Production - a tribute to Des Cole. He spoke to a group of pork producers, nutritionists and scientists from around the world on risk management and global commodity futures and what they mean for the swine industry.
Risk management can take many forms but it is not simply outguessing the market. As Kerns pointed out, 'that is just luck.' The animal agriculture industry is somewhat unique; with no accounts receivable and no way to store inventory. However major inputs and outputs are hedgeable on functioning, fungible exchanges. This provides an opportunity for swine producers to manage their risk and increase their margins. Kerns provided an example of a hedging strategy based on a short hog call and a long corn call.
Risk management can help control input costs and revenue but it cannot control: weather, politics, environmental issues, disease, or food safety scares. Kerns quoted Mark Twain. "It ain't what you don't know that gets you into trouble. It's what you don't know for sure that just ain't so." This was certainly true for producers watching the 2010 corn crop this summer. Corn in the fields looked great. However, the actual harvest fell below expectations. According to University of Missouri extension agronomist Wayne Flanery this was due to higher than normal rains and nighttime temperatures. Under these circumstances the corn plant uses up some of its energy at night to increased respiration; this is energy that would otherwise go into kernel growth.
The disappointing Midwestern corn crop, combined with severe drought in Russia and mild drought in Western Europe have caused a spike in corn prices that will have a significant impact on swine producers bottom line. Kerns believes that corn prices are likely to climb even higher; all the more reason for swine producers to develop a solid risk management strategy.