Things have been pretty good since 1998. In fact, pick out any 10-year period since the 2nd World War and they all have been great. Hogs have been the “mortgage lifter” for the farmer. It is a fact that over time the hog production business is and will probably continue being a highly profitable business providing you can overcome swine disease and avoid going broke during “market adjustments”. One strategy is to partner with your packer by having a packer marketing agreement. A market price window relating to the cost of production seems a fair deal to both packer and producer. If spot prices are over the window you, the producer, receive only part or none of the price overage and vice versa for prices below the price window. An important thing to remember is that over time an efficiently run pork production business has had a better return on capital than the packing business. This means the marketing window may not be as high as you might have thought fair. But in return for this lower price window, your partner, the packer, is taking on part of your marketing risk. A packer agreement is a must if you are planning a major increase in the size of your production system by taking on a lot of debt. In fact, it is usually impossible to borrow large amounts of capital without some sort of packer marketing agreement. However, over time, taking on all the price risk is the best strategy. No hedging or no marketing agreement! When you got into the pork production business you correctly assumed it would be profitable enough in the winning years to far offset profit losses in losing years. But, somehow you must avoid going broke during bad years. That’s the paradigm of any cyclical business. How can you do this without hedging or a marketing agreement? This can be accomplished by having enough financial resources behind the hog operation to absorb losses taken during hard times or for that matter when your operation has unusual losses due to disease or other unexpected production problems. What resources do you need? A rule of thumb for farming operations in general is to maintain working capital equal to or greater than one year’s operational expenses plus personal living expense (drawing account). Working capital is short-term assets (cash, hogs, feed and supplies) minus short-term debt (accounts payable and notes due within one year). If the hog operation goes into a negative cash flow, working capital is maintained by taking on long-term debt on other assets or actually selling other capital assets, such as land or stocks. When market prices are low it seems like an everlasting event as you watch your balance sheet slowly deteriorate. This is the paradigm of any cyclical business especially a commodity business. The slightest change in supply or demand has a multiplying effect on the price of the commodity. However, don’t be a masochist and just sit there and go broke. Prepare your financial situation or obtain a packer marketing agreement and above all, operate at maximum efficiency at all times, but especially during times of low profitability.