Interview with Hog and Crop Margin Consultant, Jon Greteman

This following conversation took place between Brendan Dorais, Manager of Business Development and Jon, who works from CIH’s Des Moines office. The two explore questions they frequently hear from producers. 

BD: How will the current production risk issues (PEDv) effect hog marketing decisions going forward?
PEDv is certainly a risk that margin management plans can take into account. In general, producers are leaving a significant portion of deferred coverage (beyond 6 months out) in more flexible type strategies in case production issues cause their hog marketings to change.

BD: How can hog producers protect extremely strong deferred margins but participate in improving margins if we have similar markets next year?
Due to this year’s record setting hog market, a lot of producers are anxious to build hedging strategies that allow them to participate in margin improvement. We can assist them in understanding and building strategies that protect stong margins, but also allow them to improve if market conditions allow.

BD: What can producers do to protect 2015 corn prices from deteriorating?
2015 corn prices are materially higher than nearby prices and offer more attractive margin opportunities. Using options leaves flexibility in case planting and crop development next year are less than ideal.

BD: What can I do to prevent current crop margins from further erosion?
Options are an attractive way of protecting margins while leaving some flexibility. As Chip’s article on options volatility points out, they are also relatively inexpensive right now. We can use puts to mitigate further downside risk or purchase calls to reopen upside against sales. Either way, they enable you to add protection while allowing participation if market psychology changes.

BD: How can producers take advantage of storage I have?
There is currently a significant carry in both the corn and bean markets. It may make sense to add coverage in deferred periods rather than nearby. You may also benefit from getting away from harvest basis during a potential record harvest.

BD: An opportunity has come up to rent additional land. What can I do to protect myself if I sign a longer term rent contract?
Managing margins further out in time gives clients the confidence to be able to make expansion decisions and lock in profits when the opportunity is there.

Futures and options trading involves the risk of loss.