Risk Management Strategies with Diversified Hog/Crop Production

Purdue University 1999 Swine Research Report. Years ago, when there were many small farms, farmers were encouraged to diversify. With todays larger operations, there is more specialization and greater concentration in agriculture. For example, the largest 10 broiler companies account for 70 percent of the production and processing (Schrader et al., 1997). Increasing specialization and concentration is also apparent in the hog industry. The long-run trend has been for smaller farms to leave the industry, and statistics show a dramatic shift to larger, more specialized units and greater geographical concentration in the production of hogs (Boehlje et al., 1997). However, there is still a significant percentage of producers, especially in the Midwest, who produce both crops and hogs. There have also been changes in risk management tools available to producers. The 1996 Farm Bill removed most of the price supports on which farmers had relied. Risk bearing responsibilities have been shifted to individual producers. Because of the increased importance of risk management and the availability of new risk management tools, there is a need to understand the effects of alternative risk management strategies. The objective of this research was to determine the effects of selected risk management strategies on hog and crop/hog farms. Previous research has analyzed the effectiveness of these strategies on crop operations or on livestock operations. However, there has been limited consideration of how risk management strategies may be affected by diversification on crop/livestock operations.