Hog Producers' Risk Management Attitudes and Desire for Additional Risk Management Education
Patrick, George F., Peiter, Amy J., Knight, Thomas O., Coble, Keith H., Baquet, Alan E., Journal of Agricultural and Applied Economics
Hog producers in Indiana and Nebraska were surveyed about sources of risk, effectiveness of risk management strategies, and prior participation in and desire for additional risk management education. Ownership of hogs by the producer, size of the operation, and age did have significant effects on ratings of both sources of risk and effectiveness of risk management strategies. Probit analysis found age, prior attendance, knowledge and prior use of the tool, level of integration, and concern about price and performance risk have significant effects on interest in further education about production contracts, futures and options, packer marketing contracts, and financial management.
Key Words: financial management, futures and options, packer marketing contracts, production contracts, risk attitudes, risk management
JEL Classifications: D81, D83, Q12, Q16
Hog producers have seen countless changes in their industry and this has changed the risk environment for hog producers. Boehlje and Lins described these changes as a transition from traditional to industrial-type production. They reported the 40 largest producers produced 5% of the total pork supply in 1986, while just ten years later the 40 largest producers were producing 31% of the pork supply. Lawrence and Grimes found that operations marketing more than 5,000 hogs a year produced nearly 80% of the hogs in 2000. Another change in the hog industry has occuned in marketing. Hog production prior to this industrialization was characterized by small producers and cash markets. As discussed by Lawrence and Hayenga, the industry has moved to vertical coordination and the use of marketing contracts.
Size of operations and marketing practices were not the only changes in the industry; production practices have also seen drastic transformations. Lawrence and Hayenga noted that 2,400 to 5,000 sow production units were common, while 25 years ago 500 sow units were regarded as large operations. The production process is highly specialized; hogs are placed in confinement buildings and many specialized practices are followed. A higher percentage of producers specialize in one or limited phases of hog production as compared with farrow-to-finish production (Lawrence and Hayenga).
In recent years, policymakers have placed more emphasis in agricultural legislation on risk management and education of producers to manage these risks. The Agricultural Risk Protection Act of 2000 demonstrated the increased emphasis on risk management by providing funding for research and development of programs to assist producers in managing risks. Another key element of the act was the proposed partnership among government and the private sector as well as public organizations to further risk management for producers. This partnership was aimed at developing programs "increasing the availabiUty of loss mitigation, financial, and other risk management tools for producers..." (United States Congress Sec 131). The Act also called for the implementation of pilot programs for livestock producers to protect against marketing and price risks as well as production losses and established a grant program with the purpose of educating producers in the area of risk management. These measures demonstrate the increased importance placed on assisting producers in managing risks.
The current risk environment is a challenging one. Changes in the hog industry have forced producers to reevaluate their business and management practices and risk management is receiving increased attention. However, there is limited information regarding hog producers' perceptions of risks they face, the effectiveness of risk management strategies, and producers' desires for additional risk management education. This paper provides empirical results from a survey of hog producers in Indiana and Nebraska. Producers' views on the sources of risk, effectiveness of alternative risk management strategies, participation in past risk management education activities, and ratings of alternative learning methods are presented. …