As the pork industry faces global market shifts and rapid price swings, lenders urge producers to maintain a balanced, unemotional approach to risk and avoid letting past industry trauma dictate future business decisions.
Shift From a “Production First” to a “Financial First” Mindset
It’s no secret that pork producers are highly competitive. From optimizing feed conversion ratios to benchmarking herd health against peers, today’s swine producer is always asking one fundamental question: What can I do better?
However, focusing solely on barns and biology is no longer enough to guarantee survival.
“Many aspects of crop and livestock production are completely out of your control,” says Chris Ford, vice president of corporate swine lending at Farm Credit Services of America. “But from a financial side, there are critical things you can control from a decision-making standpoint.”
Four Ways to De-Emotionalize Swine Risk Management
Broaden Your Market Perspective and Avoid Local Bias
It is easy to look out your window, assess your local fields, and assume your neighborhood represents the entire market. But “local bias” can lead to costly delays in marketing decisions.“We’ve got to think about our decisions more from a U.S. and global standpoint—not just our own backyard,” Ford explains. “We need to get a clear feel for where the broader industry is moving. With our heavy reliance on export markets, what happens in Mexico today or in Brazil tomorrow directly impacts the price of hogs on your farm.”
Embrace Flexible Price Protection
Too many producers view risk management as an all-or-nothing bet. Instead, utilize tools like Livestock Risk Protection (LRP) and options to establish solid floor prices without cutting off your profit potential if the market rallies. Strategic options can even be structured to achieve a net-zero cost.“Risk management is always the first thing a lender will point to,” says Ford. “We want to see producers get creative in protecting those profits as they come.”
Take the Emotion Out of Your Marketing Decisions
When profitable margin opportunities arise, lock them in for at least a portion of your production.“Don’t get too emotional about your market decisions,” Ford advises. “Whether it’s about how you’re feeling on the risk management side or your feelings from a production standpoint, you must remain objective and disciplined.”
Learn from History, But Don’t Be Paralyzed by It
Past “black swan” events—like the market collapse of 1998, the PEDv spike of 2014, or the supply chain disruptions of the 2020 pandemic—heavily influence producer behavior. However, letting past industry trauma prevent you from ever hedging again is a major business mistake.“I’ve met producers who say, ‘I will never hedge a hog again because of what happened to me years ago.’ That’s probably the wrong takeaway,” Ford says. “While our past experiences naturally dictate our future behaviors, we can’t let historical anomalies paralyze our modern risk strategy.”
Build “Staying Power” Through Financial Acumen
Production excellence is no longer the sole ticket to longevity in the swine industry. Mid-sized producers must transition operational numbers out of their heads and onto paper to foster what Val Weis, commercial swine lender with Farm Credit Services of America, calls “staying power.”
“Producers frequently ask us how they can position themselves for the next financial downturn, which we unfortunately know is always around the corner,” Weis says. “But they also want to know how to position themselves for future growth. Is this the moment to expand, or should you restructure your asset base? Having staying power means your financials are structured to handle both.”
To build this resilience, Weis recommends leveling up your financial reporting:
- Get numbers on paper: “Many mid-sized farmers are excellent producers. They love the animal husbandry side of the business and know their operational numbers by heart,” Weis says. “The challenge is translating that mental data into formal financial reports you can easily share with your trusted partners.”
- Enable collaborative conversations: Clean, written financial statements are vital to driving productive business discussions with your lenders, veterinarians, feed nutritionists, and business partners.
- Keep pace with industry evolution: “The truth is, almost everyone is an excellent producer at this point,” Weis notes. “To survive, you have to run your farm like a business, make continuous improvements, and keep pace with a rapidly evolving industry.”
What Key Metrics Do Swine Lenders Look At?
There is immense power in benchmarking. Ford notes that top agricultural lenders evaluate swine portfolios using six key financial metrics, including working capital, borrowing base, equity, net income, o operational income and hedging income.
Knowing where your farm benchmarks against top, middle and bottom tiers in these six areas allows you to quickly pinpoint and patch operational cash leaks.
When to Outsource Your Farm’s Financial Management
If building balance sheets and income statements is not your passion or strength, Weis advises outsourcing it. Just as producers hire specialized crop consultants, swine veterinarians or genetics experts, they should treat financial management as an outsourced business necessity.
“What do you want your farm to look like in five, ten, or twenty years?” Weis asks. “Having a formal plan is critical. We too often see situations where a lack of planning causes a legacy operation to dissolve rather than carry on to the next generation. Protect your legacy by treating your financials with the same discipline you bring to your barns.”
