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Hog Prices Steady — Temporarily

* US Quarterly Pork Production (million pounds)

1

2

3

4

2008

6024

5593

5632

6098

2009

5811

5488

5635

6005

% Change

-3.54%

-1.88%

0.05%

-1.53%

Hog prices appear to have stabilized for the time being. There is a strong seasonal tendency for hog prices to bottom late August or first half September. The market generally strengthens into mid-October and then trends lower for the remainder of the year. This is usually how the market behaves when the U. S. moves into contraction mode as experienced in 1998 and 2002. Producers should be watching the market in mid-October for opportunities to take some protection on November and December marketings. The contraction phase has taken longer to start because in January and March of 2009, many U. S. producers took protection on third and fourth quarter marketings and then filled their barns accordingly. It appears as more corporate barns come on stream, risk management practices have become more sophisticated to ride out the volatile periods in the market.

The U. S. sow slaughter has increased in September and

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is expected to run two to four per cent above year ago levels. This is positive longer term but increases pork supplies in the nearby period. Pork production is projected to be marginally above last year in the third quarter but lower exports have resulted in larger supplies in the U. S. domestic market.

U. S. pork exports for 2009 are forecasted to be 4.160 billion pounds, down 11 per cent from last year. Many analysts feel that U. S. exports could be down closer to 20 per cent so this USDA projection may be optimistic. During the second quarter, U. S. pork exports were down 31 per cent from 2008, largely due to lower Asian demand. Carcass weights are running above last year due to lower feedgrain prices. Producers are also holding back on sales in hopes of higher prices the following week. All these factors will result in larger supplies for the domestic market.

Total Canadian hog inventory as of July 1 was 12.105 million head, which is up from 11.885 million head as of April 1, 2009 but down from 12.980 million head on July 1, 2008. The Canadian herd has been decreasing year over year but not enough given the slower export pace. Canadian slaughter hog exports to the U. S. from January through June were down 58.5 per cent from last year while weaner exports were down 27.6 per cent. The Canadian herd needs to shrink an additional eight per cent to 10 per cent. We are seeing the effects of the Cull Breeding Swine Program but these government influences do not work as well as the market factors in decreasing herd size.

The strength in the Canadian dollar will continue to temper export demand for live hogs and pork products. Canadian pork exports to the U. S. from January through June were actually up 2.6 per cent over 2008 but this will likely change in the upcoming quarter. U. S. pork exports to Canada, for the first half of 2009, were down two per cent from 2008. Look for the par level to act as a magnet drawing the Canadian dollar higher.

I don’t see a turnaround in hog prices until the second quarter of 2010. Prices have strengthened since the lows in August but this may be short lived. Increased sow slaughter and larger carcass weights will cause supplies to increase in the short term. Lower offshore exports along with struggling North American economy will temper demand for pork products.

Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For questions or comments, he can be reached at [email protected]or 204 287 8268.

The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or Futures or Futures Options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future.

About the author

Columnist

Jerry Klassen

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Products Ltd. and also president and founder of Resilient Capital, a specialist in commodity futures trading and commodity market analysis. He can be reached at (204) 504-8339 or visit his website at www.resilcapital.com.

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