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Higher pork prices may just be temporary

(Resource News International) — The rate of North American sow liquidation and reduced pork production has been a key factor in rising prices for Canada’s hog producers, but the jury is still out on whether these values will continue to move higher in 2008, according to a forecast by a Saskatchewan Agriculture livestock analyst.

“Live hog demand from strong pork prices have helped improve market prices in general and could continue to strongly influence prices in the months ahead,” said Brad Marceniuk, a livestock economist with the livestock development branch of the Saskatchewan Ministry of Agriculture in Saskatoon.

However, with the implementation of COOL (country-of-origin labelling) by the U.S. government in September, the price strength could be in jeopardy, he said. Seasonal downtrends in pork values may also play a role in values coming off their highs.

“The daily price released by the Saskatchewan Pork Institute for hogs has climbed significantly over the past while in view of values for hogs in the U.S. rising sharply, the continued liquidation of the hog herds in the U.S. and in Canada, as well as on steady global demand,” Marceniuk said.

The SPI (Saskatchewan Pork Institute) Index 100 hog value on May 14 ranged from $1.44 to $1.55 per kilogram. In early May, the SPI index value was $1.32 to $1.42 per kg. At the end of April, the SPI index value was $1.26 per kg.

Canadian pork prices are directly tied to what happens in the U.S., he said, noting that Canadian processors use a formula which is tied to U.S. pork values.

“They use a U.S.-based price in order to prevent Canadian producers from shipping all their hogs to the U.S.,” Marceniuk said.

A lot of the strength for U.S. pork has come on the heels of strong demand for those products from China, Marceniuk said. “With the improvements in China’s economy, consumers are slowly increasing their demand for meat, including pork.”

Canada also ships pork products to China, but only at a fraction of the level that the U.S. does, he added.

However, the spin off benefit to rising U.S. pork prices, is that Canada’s values also increases as the formula used by Canadian packers kicks in, Marceniuk said.

Some of the rise in U.S. and Canadian pork prices can also be attributed to seasonal events. North American consumers’ barbecues resurface in the springtime, he said, and the grilling of pork, beef and poultry resumes.

Marceniuk warned that with the pending implementation of COOL in the U.S. in September, hog and subsequently pork prices in Canada are likely to decline significantly.

“There have been a number of U.S. hog processors that have already indicated they will no longer import Canadian hogs because of the new laws,” Marceniuk said.

“That will likely mean more Canadian hogs looking for a home, which will cause prices to come down from current levels,” he said.

However, Marceniuk speculated that the refusal of the Canadian hogs by the U.S. plants may be a ploy to reduce the value that they are paying for the Canadian hogs.

“It will be interesting to see if these U.S. plants again resume purchases of Canadian hogs when prices have declined 10 to 20 per cent,” he said.

Large frozen storage supplies in the U.S. and Canada may also work against pork prices climbing too much higher as well, he said.

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