Risk management in pig farming via futures and hedging

721 views

Published on

People active in agriculture have to deal with volatile markets and the world economy. Especially pig farmers had a hard time trying to create a stable income. But risk management and securing margins is possible via futures and hedging. DLV is specialized in this field.

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
721
On SlideShare
0
From Embeds
0
Number of Embeds
141
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Risk management in pig farming via futures and hedging

  1. 1. Risk Management Control : The Agricultural Derivatives Market as Price Risk Stability Tool A practical approach DLV Market Advisory Services Carl De Braeckeleer
  2. 2. Problem • Increasing Price-volatility of Agricultural Commodities • Decreasing Correlation between Feed prices and Pig prices • Price Risks became Financial & Company Risks
  3. 3. 27-09-12 27-06-12 27-03-12 27-12-11 27-09-11 27-06-11 27-03-11 27-12-10 27-09-10 27-06-10 27-03-10 27-12-09 27-09-09 27-06-09 27-03-09 27-12-08 27-09-08 27-06-08 27-03-08 27-12-07 27-09-07 27-06-07 27-03-07 27-12-06 27-09-06 27-06-06 27-03-06 27-12-05 27-09-05 27-06-05 27-03-05 27-12-04 Pig Meat Price Volatility Pig Meat Price - Westvlees 1.500 3000 Pig Places : 450.000 EUR 1.400 1.300 1.200 1.100 1.000 0.900 0.800 0.700
  4. 4. 15 9/1/2012 7/1/2012 5/1/2012 3/1/2012 1/1/2012 11/1/20… 9/1/2011 7/1/2011 5/1/2011 3/1/2011 1/1/2011 11/1/20… 9/1/2010 7/1/2010 5/1/2010 3/1/2010 1/1/2010 11/1/20… 9/1/2009 7/1/2009 5/1/2009 3/1/2009 1/1/2009 11/1/20… 9/1/2008 7/1/2008 5/1/2008 3/1/2008 1/1/2008 11/1/20… 9/1/2007 7/1/2007 5/1/2007 3/1/2007 1/1/2007 11/1/20… 9/1/2006 7/1/2006 5/1/2006 3/1/2006 1/1/2006 Piglet Price Volatility Piglet prices - VBP 45 500 Sow Places : 250.000 EUR 40 35 30 25 20
  5. 5. Wheat Price Volatility 2007-2012 Synagra-prices > 230% !!
  6. 6. 50.00 0.00 2007-01 2007-02 2007-03 2007-04 2007-05 2007-06 2007-07 2007-08 2007-09 2007-10 2007-11 2007-12 2008-01 2008-02 2008-03 2008-04 2008-05 2008-06 2008-07 2008-08 2008-09 2008-10 2008-11 2008-12 2009-01 2009-02 2009-03 2009-04 2009-05 2009-06 2009-07 2009-08 2009-09 2009-10 2009-11 2009-12 2010-01 2010-02 2010-03 2010-04 2010-05 2010-06 2010-07 2010-08 2010-09 2010-10 2010-11 2010-12 2011-01 2011-02 2011-03 2011-04 2011-05 2011-06 2011-07 2011-08 2011-09 2011-10 2011-11 2011-12 2012-01 2012-02 2012-03 2012-04 2012-05 2012-06 2012-07 2012-08 2012-09 Feed Cost Volatility Pig Meal Prices - BEMEFA 350.00 300.00 250.00 200.00 150.00 100.00 3000 Pig Places : 300.000 EUR 500 Sow Places : 150.000 EUR
  7. 7. 40 2007-01 2007-02 2007-03 2007-04 2007-05 2007-06 2007-07 2007-08 2007-09 2007-10 2007-11 2007-12 2008-01 2008-02 2008-03 2008-04 2008-05 2008-06 2008-07 2008-08 2008-09 2008-10 2008-11 2008-12 2009-01 2009-02 2009-03 2009-04 2009-05 2009-06 2009-07 2009-08 2009-09 2009-10 2009-11 2009-12 2010-01 2010-02 2010-03 2010-04 2010-05 2010-06 2010-07 2010-08 2010-09 2010-10 2010-11 2010-12 2011-01 2011-02 2011-03 2011-04 2011-05 2011-06 2011-07 2011-08 2011-09 2011-10 2011-11 2011-12 2012-01 2012-02 2012-03 2012-04 2012-05 2012-06 2012-07 2012-08 2012-09 Margin Volatility Pig Producers Vleesvarkens (open) 3000 Pig Places : 275.000 EUR 35 Historische Voederwinst - Spotmarkt 30 25 20 15 10 5 0
  8. 8. World Grain Market Future Market spot Future Market 40 0 2007-01 2007-02 2007-03 2007-04 2007-05 2007-06 2007-07 2007-08 2007-09 2007-10 2007-11 2007-12 2008-01 2008-02 2008-03 2008-04 2008-05 2008-06 2008-07 2008-08 2008-09 2008-10 2008-11 2008-12 2009-01 2009-02 2009-03 2009-04 2009-05 2009-06 2009-07 2009-08 2009-09 2009-10 2009-11 2009-12 2010-01 2010-02 2010-03 2010-04 2010-05 2010-06 2010-07 2010-08 2010-09 2010-10 2010-11 2010-12 2011-01 2011-02 2011-03 2011-04 2011-05 2011-06 2011-07 2011-08 2011-09 2011-10 2011-11 2011-12 2012-01 2012-02 2012-03 2012-04 2012-05 2012-06 2012-07 2012-08 2012-09 Decreasing Price Risks ? Pig Producer 30 20 10 5 Historische… EU Pig Market Vleesvarkens (open) 35 Future Market 25 spot 15 Future Market
  9. 9. Solutions Gettingstarted Assistance Education Full-package Assistance PRICE STABILITY Market Information Hedge-Tool Data-Tool Brokerage Services
  10. 10. MARKET INFORMATION Price Stability Possibilities (Ex.) 33% via Spot Market 33% on Physical Contract PRICE STABILITY 33% via Future Market Group Approach Individually
  11. 11. Role of Future Markets Revenues Costs Covering Revenues Covering Costs MARGIN Covered
  12. 12. Market Information
  13. 13. Hedging  Hedging ≠ Speculation !!  Hedge-Effectivity (HE):  Hedge-Ratio (HR): Or  Covering 1 Ton Spot Commodity = 1 Ton Future Commodity  Covering 1 Ton Spot Commodity (Feed) ≠ 1 Ton Future Commodity Correct Hedge-Strategy = Correlation + ‘Basis’ + HE + HR !! HE
  14. 14. Example 1: Graphical Presentation Correlation with Feed Wheat 98,26% BASIS ! MPH = Multiple-Product Hedge Strategy = (HR x Corn) + (HR x Rapeseed) + (HR x M.Wheat)
  15. 15. Example 2: Pig Trading Companies (PTC) • PTC-West Cvba (18-07-12) & PTC-Oost Cvba (04-09-12)  68 Pig & Piglet Producers  12% of the Belgian Pig Meat Market Share  Target group : complete ‘Chain’ (Feed producers till Retail) • PTC – The Netherlands (France, Denmark, etc.) • Also : – Grain Producers, Traders and Processing Industry – Potatoes Producers, Traders and Processing Industry – Feed Producers
  16. 16. In Practice: Conclusions  Correct Correlation, Spread & ‘Basis’ calculations  ‘BASIS’ (SPOT – Future Price) calculations are crucial !!!  Graphical Presentations & Technical Analyses  Simple and Clarifying Database  ‘Predicting’ the Future with historical data  Numerous realistic Hedge-Strategies • Assessing ‘Good’ Correlations • Assessing ‘Good’ Hedge-commodity-basket (Feed = 3-4 Future Commodities) • Assessing ‘Good’ Hedge-Effectivity • Assessing ‘Good’ Hedge-Ratios  Formulating Statistical & Objective Buy and/or Sell Strategy!
  17. 17. End • Questions ? • More information : www.dlvmas.be – 0032(0) 800/90.910, info@dlvmas.be – Bart Teuwen: bt@dlv.be – Matthijs Boúúaert: mabo@dlv.be

×