Hog farmer sees ongoing inflation pressure

 

By Vildana Hajric and Michael P. Regan, Bloomberg News

via Illinois Farmer Today/AgUpdate - Sep 19, 2022

 

Rising food prices have been one of the key drivers of this yearís inflation woes as farmers across America face surging costs for fertilizer and fuel while also grappling with lingering supply-chain issues and labor shortages.

 

Brian Duncan, operator of a family farm and vice president of the Illinois Farm Bureau, joined Bloombergís ďWhat Goes UpĒ podcast to talk about the market for agricultural commodities and offer his perspective on the economy as he plans next yearís crops. In addition to hogs, his farm near Polo, Illinois, also produces corn, soybeans and cattle.

 

Q: How do you think the average hog farmer is doing this year?

 

A: For the most part, the hogs have made enough money this year to pay the feed bill, which when you look at the price of corn and soybeans, thatís really saying something.

 

Now, myself, Iím in a different position than a lot of hog producers, in which I grow all my corn that I need to feed my hog operation. So Iím in essence buying it from myself. Thereís a benefit to that. Thatís kind of hedging a risk. But I would say in general, a lot of hog producers I know implement risk-management strategies, and when they can see a margin that allows them to buy corn and soybean meal and hedge hogs at a price that allows them margins, they will take all three positions.

 

And so the market has offered those opportunities this year. In general, it has been a pretty good year for the hog side of the business.

 

Q: Can you talk about how itís much more difficult for farmers to pass on costs?

 

A: Itís impossible for farmers to set their price, at least in a commodity-type market.

 

Now, if youíre a specialty grower or have a direct-to-consumer market, then youíve got some options. But most of us grow bulk commodities. And we are at the whim of the marketplace ó and that marketplace has two aspects to it. So itís got the futures price ó you can look on the Board of Trade and see the prices that the board is offering on different commodities. But then the next part of that is the local price, which involves basis. And basis is the discount plus the futures price that the local market is willing to pay. And usually itís a discount because usually thereís transportation involved. But in times of shortage, some local markets will actually pay over the Board of Trade.

 

Usually marketing is a two-step process. I will do a hedge on the board, and then I will look for opportunities to capture a good basis as well. And so itís all a matter of timing, knowing market dynamics and looking for those opportunities.

 

So selling for a farmer is generally a two-step process on the grain side, at least. Hogs, there is a basis element to it. And hogs get really complicated.

 

Hogs do not have a way to deliver. If I sold a contract on the Mercantile Exchange, thereís no way I can deliver that contract of hogs anywhere. So it does whatís called cash settled, and it means it has to settle out with the cash market. But the basis is still very real in that aspect as well.

 

Q: Is it safe to say that it doesnít quite seem like inflation is cooling off from your perspective, given all the input costs? ...

 

Q: Can you talk about your crop this year and, in particular, your corn crop, considering that the U.S. is set to have its smallest corn crop in three years? ...

 

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