Hog sector hit hard by pandemic

Market weakness seen likely to push some farmers out of business

(Dragos Cojocari/iStock/Getty Images)

MarketsFarm — COVID-19 has hit the hog sector hard, with the double-edged sword of large supplies and reduced demand weighing heavily on the market.

“The prospect of profitability at current forward prices and at current cash prices is nil… and there’s really no prospect of making anything this year,” said Tyler Fulton, director of risk management with [email protected] Marketing in Manitoba.

While a number of factors may be weighing on values, the COVID-19 pandemic is the overarching bearish influence on both the supply and demand sides of the market.

On the one hand, packer closures due to the virus left the market awash with hogs at a time when supplies usually tighten, said Fulton.

Also, while burdensome supplies have weighed on prices in the past, the substantial cuts to demand due to the pandemic were unprecedented.

“When you lose 25 per cent of food service across North America, that’s a shock we’ve never even considered before,” said Fulton.

While many producers are still staying profitable due to forward contracts — and government programs should also provide some support for the industry — the current weakness in the market means some hog farmers will likely be forced out of business.

“It will be a tough slog,” said Fulton.

“From a global demand standpoint, if you leave everything else aside, there’s still a massive hole in Asia resulting in the losses from African swine fever.”

However, bottlenecks along the supply chain are causing uncertainty, limiting any potential support from that demand potential.

The August lean hogs futures contract in Chicago on Wednesday hit a contract low of $51.525 per hundredweight, but managed to finish with small gains on the day (all figures US$).

Nearby hog futures had traded as low as US$41/cwt in mid-April when packers were shutting down due to the pandemic.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.



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