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Markets not out of the woods yet, but summer shows improvement

1 2 U. S. PORK QUARTERLY PRODUCTION (MILLION POUNDS) U. S. PORK SUPPLY AND DISTRIBUTION (MILLION POUNDS)

3

4

Beginning Stocks

Production

Imports

Total Supply

Exports

Domestic

Consumption

Ending Stocks

2008

6024 5593

5632

6098

2009

5875 5500

5545

6090

2006

494

21075

990

22559

2995

19050

514

2007

514

21962

968

23444

3141

19767

536

2008

est

536

23367

831

24734

4688

19425

641

%Change

-2.47% -1.66%

-1.54%

-0.13%

2009

est

641

23030

840

24511

4000

19871

640

The cash hog market has been firm over the past month due to strong retail demand and an improvement in off shore buying interest. Values in Peoria continue to hover at the $37/cwt level while Interior Iowa and Minnesota prices have traded in the range of $56/cwt to $58/cwt. Prices in Western Canada have been percolating higher with values quoted at $1.35/kg to $1.40/ kg. Deferred hogs have been trading in the range of $1.70kg to $1.75kg for June through August. The weaker Canadian dollar has supported the domestic market. While the current exchange rate underpins the cash trade, the industry has also experienced steady exports and lower imports of pork products from the U. S.

The fundamental situation looks price-friendly for the second quarter. Demand improves from a seasonal perspective moving into barbeque season. Exports of U. S. pork products have also increased as the credit crisis recovers. Lower supplies of competing meats will also continue to support domestic retail prices. Pork remains most favorably priced compared to other meats; this is enhancing demand as more people are unemployed. Poultry production is expected to be down sharply due to lower chick placements while beef is also contracting compared to last year.

The U. S. domestic market has an additional 450 million pounds to absorb in 2009 largely due to the lower export projection. U. S. pork exports are expected to be down 668 million pounds from 2008. I feel the domestic market should be able to cope with the larger supplies given the retail movement and increased demand. Consider the U. S. supply and demand table below.

The Canadian dollar has been a major factor enhancing domestic hog prices. At this time, there is potential for the Canadian dollar to strengthen. The U. S. Federal Reserve Board is buying an additional $750 billion of mortgage-backed securities and also buying long-term debt. This will drive down mortgage rates and set a positive tone for the economy. The Canadian dollar has potential to move back up to 85 cents U. S. as interest rates stay at record low levels. This could cause local hog prices to drop by four to six percent strictly on the currency factor. Producers should look at taking some protection on the Canadian dollar.

Producers should also be looking at taking protection on their feedgrain requirements for the 2009-10 crop year. Barley prices have potential to move back up to historical highs next fall as seeded acreage is expected to be down 10 to 15 per cent. Energy prices have stabilized and have potential to strengthen as the economy shows signs of improving. U. S. corn prices will also be vulnerable to move higher if adverse weather occurs in summer. These factors could cause corn and all feedgrains to strengthen in the upcoming crop year.

I’m expecting stronger hog prices in the first half of 2010 as the U. S. and Canadian economies show signs of recovering. Pork exports should also rebound resulting in lower supplies for the domestic market.

Source: USDA

Source: USDA

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