People active in agriculture have to deal with volatile markets and the world economy. Especially pig farmers had a hard time trying to create a stable income. But risk management and securing margins is possible via futures and hedging. DLV is specialized in this field.

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