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Target Pricing: An Option for Forward Contracting

by 5m Editor
7 November 2003, at 12:00am

ONTARIO - Ontario Pork's Target Pricing Program is a unique opportunity for producers who would like to use the Forward Pricing Program without having to continually check available Forward Contract prices.

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Ontario Pork Logo Producers can offer Ontario Pork a set amount of hogs for a specific price during any delivery period, and will also specify how long the Target Pricing offer remains in effect.

A main benefit of the Target Pricing Program is that producers can take advantage of the highest forward contract price offered without steadily following Ontario Pork's Forward Contract prices.

Using the below graph to illustrate the example, imagine two producers who would each like to contract 100 hogs at a price of $145 for the November 16 - December 14, 2003 delivery period. Producer A enters a Target Price agreement on October 1, offering 100 hogs at a price of $145 for the November - December delivery period. Producer B periodically checks the currently offered Forward Contract prices.

On October 14, the first set of prices had a value of $147.42 (circled) for the desired delivery period. Markets changed rapidly, so a second (lower) set of prices was generated. Producers A's contract was automatically generated for 100 hogs during the November - December delivery period at a base price of $147.42. Producer B may have missed the optimum price, as the second set of prices was generated soon after the first set.



Source: Ontario Pork Newsletter - November 2003

5m Editor