Alternative marketing strategies from Missouri slaughter hog producers

Hog producers operate in markets with highly variable prices and rising production costs. Because of volatile prices, returns to hog operations have been highly variable making this a risky enterprise. In these times of volatile prices, it is important to establish a market goal and develop marketing strategies, the producer wnats those strategies that produce a higher level of profit and lower level of variance of profits over time. Cash contracts, futures market contracts, and the combinations of these two are ways to achieve this goal. This study simulated the mean return and variance of return of six strategies for the period 1972-86. The simulated means and variances were compared to the actual mean returns and variances of returns received by the producer 105 days later. The strategies used were (a) Cash only, (b) Full hedge, (c) Full cash contract, (d) half hedge half cash, (e) half hedge - half cash contract, and(f) half cash-half cash contract. The full hedge, half hedge-half cash and cash only strategies performed the best in both the simulated and the actual activities. Full hedge had the highest mean return and the second highest variance in the simulations. Cash only had the highest, mean return and variance of return in the actual computations. Full cash contract had the lowest variance and mean in both the simulations and the actual situations. There is no guarantee that the strategies which produced the highestmean returns for he period in this study would continue to do so in the future. Different levels of risk aversion could lead hog producers to choose different marketing strategies. The futures market is a legitimate marketing tool available to hog producers-one offering many advantages that cash-market alternative cannot.