As the falling price of oil and other commodities drags down the Canadian dollar, Canadian hog and pork exporters gain an advantage

It is important to note that the Asian market is suffering worse than in the currency crisis of 1997. This may take a larger toll on the export program in upcoming months.

Weakness in the Canadian dollar versus the U. S. greenback has been a main factor supporting cash hog prices in Canada. In late October, producers were receiving around $1.40 per kg in Alberta and up to $1.50 in Manitoba. These prices are very similar to month earlier levels. Prices in the U. S. were about $10 per hundredweight (cwt) lower in comparison to September as hogs traded hands at the US$37.50 level in Peoria.

Producers appear to be current with sales, limiting the amount of hogs backing up in the system. The economic situation has also resulted in a shift in demand, but the hog complex is holding up fairly well through the recession. Offshore export demand has also underpinned domestic prices, but it is inevitable that the worldwide credit crunch will have some impact on the domestic North American market.

The Canadian dollar is expected to continue the weakening trend as the U. S. dollar strengthens against other major currencies. It appears that investors are looking for a safe haven for funds, pulling money out of stocks and commodities and looking at the U. S. dollar as a major investment for the next 10 to 16 months. Canada’s resource based economy is feeling the effects of the economic slowdown around the world and with crude oil prices 50 per cent off their highs, it is hard to argue that currency strength will return in the short term. Inflationary pressures that were evident earlier in the year have subsided and central banks are not as eager to increase rates.

The U. S. slaughter pace is running below earlier projections. Inventory numbers on the recent hog and pig report may be somewhat overstated, but it is too early to tell at this time. Hog marketing weights are coming in fairly close to year ago levels despite seeing feed costs decline. Farrowing intentions were down on the last report, but the pigs per litter were higher than anticipated. Therefore production estimates for the first and second quarter of 2009 are very similar to that of 2008. The USDA is estimating total 2008 pork production at 23.55 billion pounds, up 60 million pounds from their estimate in September. For 2009, pork production is forecasted at 23.164 billion pounds.

EXPORTS TO ASIA MAY DROP

U. S. pork exports from January to August were up 68.9 per cent from last year, but the USDA is forecasting U. S. pork exports to reach 5.3 billion pounds, down 120 million pounds from the September forecast. It is important to note that the Asian market is suffering worse than in the currency crisis of 1997. This may take a larger toll on the export program in upcoming months. Chinese government policy is to build up the domestic hog herd after a couple years of disease problems. This may trim demand for North American pork products as well.

The average Asian consumer is also struggling financially, similar to North America. That means demand for higher-end meat products will be down from year ago levels in the first and second quarter of 2009. U. S. pork exports in 2009 are projected to reach only 5.1 billion pounds, which suggests more pork will need to be absorbed in the domestic market.

There is some downside risk in the hog market for November and December. At this time, it is difficult to say how the U. S. economy will fair in 2009. I heard on the business news that an estimated 25 million U. S. consumers are on food stamps which is about US$125 per month. Not to mention that restaurant and resort demand is also suffering from lower traffic.

Producers are encouraged to stay current with production. The weaker currency will continue to support Canadian values.

Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. He can be reached at [email protected]

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.

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