This document provides an overview and summary of a pork production conference that focused on volatility in profitability, prices, and costs. It discusses strategies for managing risk and margins, including using historical data on revenues, costs, futures prices for hogs, corn, and meal to evaluate opportunities and develop risk management plans tailored to operations based on their current ratio and risk tolerance. Producers are encouraged to implement written risk management plans that protect varying percentages of expected margins each quarter based on their bias and capital availability in order to survive in the evolving industry.

1. Central Plains Regional Agribusiness
Pork Management Conference
June, 2011

2. Missouri River near Omaha
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3. 3
Overview
 Volatility
 Profitability
 Revenue and cost of production
 Lean Hog Prices
 Grain and Feed Prices
 Margin Management
 Risk-bearing Ability
 Crush strategy
 Strategy Considerations
 Working capital expressed as current ratio
 Opportunities based on historical margins

4. 4
Pork Production Profit & Loss (Lawrence)

5. Historical Revenue and Cost (Lawrence)
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6. 6
June Hog Futures

7. 7
July Corn Futures

8. July Meal Futures
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9. “Crush” History for June – 11 Hogs
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10. 10
Strategies
 The pork production industry continues to evolve and producers
have to evolve to participate.
 Historically, this was a game of production efficiency. The most
efficient were the survivors of the industry.
 Going forward, those who manage risk will be the survivors
• Input risk – Grain, meal, etc.
• Market risk
 Challenges will be implementation
• Having the right people on staff to execute
• Having a “margin” mentality vs. too much weight on a bias
• Having enough capital to meet margin calls, premiums, etc.

11. 11
Strategies
 Written risk management plan
 What is the overall plan for risk management
• What are you trying to accomplish?
• What tools will be used (packer contracts, procurement contracts,
hedges, options, physical ownership, hedge to arrive, etc?
 Who will implement the plan
• Risk management team, individual responsibility, review
• Outside council, internal talent
 What is the budget, what funds are available to manage risk?
• Few have an unlimited budget
• Balance strategy with capital limitations

12. Risk Bearing Ability
Current Ratio Market Risk Protected
2.00:1 or greater 0%
1.75:1 to 2.00:1 10 – 20%
1.50:1 to 1.75:1 40 – 50%
1.25:1 to 1.50:1 50 – 70%
1.25:1 or less 80 – 100%
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13. 13
Strategies for “Margin” Management
Protect 30% Protect 55% Protect 75% Protect 90%
1st Quarter $0 $5 $10 $15
2nd Quarter $10 $15 $20 $30
3rd Quarter $10 $15 $20 $30
4th Quarter $0 $5 $10 $15
Dependent on bias:
•Time factor
•Risk tolerance – liquidity
•Where we are in the cycle

14. Thank you!
Financing the livestock industry