The document discusses the increasing price volatility in the agricultural derivatives market, particularly regarding pig and feed prices, which has turned price risks into significant financial challenges for companies. It emphasizes the importance of risk management strategies, including hedging techniques and price stability solutions, to mitigate these risks in the agricultural sector. Additionally, it highlights collaborative efforts across the supply chain, from producers to retail, to maintain stability and effectively cover costs.

1. Risk Management Control :
The Agricultural Derivatives Market as
Price Risk Stability Tool
A practical approach
DLV Market Advisory Services
Carl De Braeckeleer

2. Problem
• Increasing Price-volatility of Agricultural
Commodities
• Decreasing Correlation between Feed prices
and Pig prices
• Price Risks became Financial & Company Risks

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. 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. Wheat Price Volatility 2007-2012
Synagra-prices
> 230% !!

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. 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. 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. Solutions
Gettingstarted
Assistance
Education
Full-package
Assistance
PRICE
STABILITY
Market
Information
Hedge-Tool
Data-Tool
Brokerage
Services

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. Role of Future Markets
Revenues
Costs
Covering
Revenues
Covering
Costs
MARGIN
Covered

12. Market Information

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. 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. 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. 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. 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