A profitable summer for Canadian hog producers may extend into the fall and winter months, as the margin between hog prices and the cost of feed is seen to be very favourable.
“Based on what we know today, we’re experiencing significantly higher prices than what we expected to at this time frame, and feed prices are relaxing, so there’s a good margin right now,” said Perry Mohr, general manager for [email protected] Marketing Services at Headingley, Man.
“Based on futures prices, producers could probably lock in for a minimum of break-even throughout the fall and winter months, with some people being profitable as we head into next spring.”
Hog prices historically tend to decline heading into the fall due to the increased volume entering the market, but this season hasn’t seen that volume boom yet, which has left prices fairly stable, Mohr said.
“Prices have actually been steady to slightly higher the last month,” he said. “They’ve kind of moved counter-seasonally. At this time of the year, prices typically go into somewhat of a retreat because supplies going to the market usually increases in late August, through September and October.”
“However, we’ve actually seen almost the opposite occur. Not that supplies have decreased, but they just haven’t increased like normally expected,” Mohr added.
There isn’t a single definitive reason why hog volume hasn’t increased, but Mohr said it could be combination of three factors.
“One potential reason is the impact of the PED (porcine epidemic diarrhea) virus in the U.S. and it being larger than anticipated, as well as impacting the market earlier than anticipated,” he said.
“The second reason that is tossed as a potential cause is the significant heat wave that went through a large part of the hog grower area of the U.S. When it’s really hot, pigs don’t have much of an appetite, so they don’t eat and put on weight as quickly as possible.
“The third is due to Russia and China’s ban on pork exports from the U.S. that were fed Paylean. We are anticipating a lot of producers stopped feeding it to hogs, so that would again decrease weight gains significantly and potentially cause a hole in the number of marketed hogs.”
Those factors have led to prices extremely higher than those seen last year at this time, Mohr said.
“Looking at prices for week 38 (of the year), this year Signature No. 4 hogs are roughly C$175 (per 100 kg) and last year they were $123,” he said. “So there’s a big difference.
However, Mohr said the biggest difference from last year remains the price of feed. Last year costs were much higher due to the drought in the U.S. Farm Belt, but this year the U.S. Department of Agriculture expects a record-large U.S. corn crop.
At the close on Thursday, December contract corn was valued at US$4.5675 per bushel; corn was over $8 per bushel in 2012.
“Starting a few weeks ago there has been a significant change to the feed component in terms of cost of production, and that will enhance profitability significantly,” Mohr said.
— Brandon Logan writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.