Canadian hog industry continues to move through a contraction phase. Despite the lower hog numbers, the market remains under pressure due to lower consumer incomes. The economy continues to deteriorate and it appears that we may see higher unemployment numbers over the next six to eight months. Exports are also slowing due to weakening demand in major markets such as Japan. In the past month, the hog market has tried to stabilize and move higher
but whenever there is a large decline in equity markets or the energy sector, the weakness spills over into the livestock complex.
Canadian hog inventory as of January 1, was 12.4 million according to Statistics Canada. This is down 10.2 per cent from January 1, 2008. The Canadian government “Cull Breeding Swine Program” along with rising input costs resulted in lower hog numbers. Smaller producers decided to opt out of feeding hogs and focus on grain production given the higher returns in grain farming the past year. Statistics Canada also noted the Country-of-Origin Labeling in the U. S. resulted in market uncertainty and many producers were not willing to take the risk in 2009. The Canadian hog industry was built on abundant feed grains, a weak Canadian dollar, and free trade. All three of these competitive advantages were eliminated in 2008. We need to see 15 months of negative feeding margins in the U. S. before significant contraction occurs.
U. S. unemployment numbers jumped to an all time high reaching 4.99 million. Major corporations continue to announce larger than expected layoffs. Major companies are cutting costs, not only in labour but in company expenses, meals and corporate travel. All costs are coming under scrutiny and this is having a major effect on restaurant demand. The auto crisis continues to loom in the background. Even with loans to come, through from the governments, further layoffs are inevitable and this will trickle down to the whole U. S. economy. Canadian and U. S. unemployment
levels could still reach 10 per cent by the end of 2009. We cannot fully comprehend what this will do to pork demand as this would be devastating to the hog complex. At this time, there are approximately 31.5 million Americans on food stamps but this could increase by the end of the year.
For the week ending February 20, values in Peoria were quoted at $36.50. The cash market in the U. S. has been relatively flat so far this winter. Prices in Western Canada were quoted in the range of $1.30/kg to $1.40/kg. The market appears to somewhat stronger in Canada. Packing margins are in negative territory and many hog producers have their nearby needs covered. At this time, producers need to take some protection on their August through December marketings. The downside risk in the economy along with a seasonal increase in supplies could result in market moving down to historical low levels.