Canadian Hog Prices Feel Heat

Cash hog values in Western Canada remain under pressure. The U. S. Country-of-Origin Labelling law, H1N1 influenza, and the stronger Canadian dollar have all had a negative influence on the Canadian market. Prices in Manitoba were hovering at the $1.43/kg. in late May while the Alberta slaughter market was quoted at $1.37kg. This is up approximately $0.20/kg from a couple weeks earlier during the main hype of the H1N1 outbreak. The U. S. national weighted average carcass price for the week ending May 22 was $54.88, down $6.74 from a week earlier and $22 lower than last year.

The North American hog market is expected to recover in late June. The H1N1 flu outbreak slowed offshore export demand and domestic consumption in late April and May. Approximately 20 countries banned North American pork imports and this is setting a negative tone to the overall meat complex. Countries such as Russia have banned U. S. pork and poultry while some countries have banned only pork. The numbers of flu incidents and reports have been receding and market activity is starting to return to normal. There was a temporary backlog of market ready hogs but producers are starting to become more current with production as the slaughter pace resumes. Retailers held back on pork orders because consumer activity was uncertain. Comments in the industry suggest that retail pork movement is improving, especially as warmer temperatures encourage barbeque activity. The export bans are expected to be short lived as this is a political move more than anything.

The U. S. Country-of-Origin Labelling law continues to set a negative tone to Canadian pork exports. During the first quarter of 2009, slaughter swine exports to U. S. were down 67 per cent in comparison to last year. At this time, we expect exports to pick up in the final quarter of 2009 but the industry is still coming to terms with the overall rule. USDA Secretary Vilsack has encouraged plants to follow his voluntary labelling rules which are more comprehensive and burdensome than the original law. Each plant has their own policy on this matter but it appears that the labelling law is affecting pork exports more than beef.

Canadian hog and pork prices are also feeling the weight of the stronger Canadian dollar. This will further temper the export program later in summer as the loonie has potential to reach up to the range of 92 to 94 cents U. S. We all remember how the market behaved back in the fall of 2007 and producers should look at taking some protection on the Canadian dollar in case the exchange rate moves to par longer term. Monetary and fiscal policies of the U. S. dollar are negative and will cause the value to weaken against other major currencies.

In previous issues, I advised producers to take some protection on the August lean hog futures or forward contract a large portion of their summer marketings. In late April, the August forward price in Manitoba was $1.65/kg. In the final week of May, the August price was $1.47/kg. At that time, the August lean hog futures contract was near historical highs and the Canadian dollar was also at lower levels. The market was providing a very good hedging opportunity given the current economic situation. Producers may still want to look at some option strategy that protects the downside and leaves the upside open. We’ve seen how vulnerable prices can be if there is another economic shock or if political barriers to not allow exports to resume as normal.

Gerald Klassen analyses cattle and hog markets in Winnipeg He can be reached at [email protected]or 204 287 8268.

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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