Cash hog values remain firm

Cash hog values in Manitoba were trading in the range of $1.30/kg to $1.40/kg area in late January. The Peoria market was hovering at $36/cwt. Prices have been edging higher over the past couple weeks. Demand appears to be stabilizing and supplies of market ready hogs are somewhat tighter than earlier anticipated. I’m still looking for the market in Western Canada to percolate higher into early summer. There is potential to reach the range of $1.50 to $1.60 by June.

Poultry production in the U. S. is in a contraction phase, which will underpin pork prices for the first half of 2009. The decrease in white meat production will result in higher demand for pork. Poultry production has been increasing each year over the past 10 years and this is the first year in which the market will experience a decrease in supply. However, broiler supplies will rebound in the fourth quarter of 2009 and will set a negative tone for the pork market at this time.

Packing margins are slightly in the red and this is weighing on hog prices in the short term. Industry sources suggest that pork supplies are building in the system and the retail market needs to encourage demand. The weak economic situation is setting a negative tone. There is still an estimated 31 million Americans on food stamps and unemployment numbers are highest since 1982. There

were an estimated 589,000 jobless claims for the week ending January 17, approximately 30,000 higher than analysts expected. U. S. housing starts are the lowest levels since data was recorded in 1959. There is no signal that the economy is turning around. Recent government stimulus packages have provided a temporary bandage to the banking system but credit is still tight. Consumer confidence continues to hover at record low levels. There has been a shift in demand due to lower income structure of the average consumer. This will continue to limit further upside in the pork market despite the lower supplies. Canada’s economy is usually on a 6 to 8 month lag in comparison to the U. S.

At the time of writing this article, the April lean hog futures were at the $66 area but August was trading in the range of $76 to $77. Looking at a long term continuous hog chart, the August futures are near record highs. I feel this is an opportunity for producers to buy some put options, or use some type of strategy to limit the downside risk while leaving the upside open. Hog futures at historical highs does not last for a significant period of time and given the situation. There is considerable risk in the market in the last half of 2009. Pork and poultry supplies will increase at this time and the demand equation is still quite negative.

Gerald Klassen analyzes 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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