Lean hog futures have been trending higher in September, which is a counter seasonal price rally. Given the economic turmoil over the past year, seasonal price trends don’t hold water like they use to. North America appears to be moving out of the recession with unemployment numbers set to make highs in the final quarter of 2009. Domestic demand for all meat products should start to improve in the second quarter of 2010. Pork exports should also come back on stream to levels seen prior to the global economic meltdown.
In the meantime, we are seeing the sow and gilt slaughter increase over year ago levels which is a positive signal. This may add to domestic supplies in the short term but will bode well later in 2010. At this time, it is important that producers don’t get too bullish on the hog market. If margins start to come in line, it is prudent to forward contract or take some protection on the futures. If it is one thing we have learned over the past year, the market structure can change rather quickly. Hog prices in Peoria in late Sept, were hovering at $30/cwt; Manitoba values were quoted at $0.95/kg for nearby delivery and $1.35/ kg for May 2010. Prices in the deferred months are starting to look more reasonable.
US Quarterly Pork Production (Million Pounds)
Notice U. S. pork production estimates for the final quarter of 2009. Notice the domestic production is actually below last year but overall supplies are actually above last year. Year to date U. S. pork imports are running 3.6 per cent below last year but exports are down a whopping 19.3 per cent. For 2010, pork exports are expected to be 4.450 billion pounds, up from 4.160 billion pounds in 2009 and down marginally from 2008 levels of 4.667 billion pounds. A recovery in the export program along with the smaller domestic production should keep prices for the second quarter well supported.
It is important to note, Canadian pork exports to the U. S. from January through July were up 3.6 per cent over 2008, live hog exports were down 32 per cent. The trend to export pork products over live animals will probably be the trend in the future because of COOL.
I have attached two charts; the first chart shows retail prices and the second chart has wholesale prices and lean hog values. Notice that August retail prices are only down three per cent from August of 2008 but lean hog prices are down nearly 42 per cent from last year. Wholesale values are also down 27 per cent. Retail prices have little variance while whole prices and lean hog values fluctuate accordingly.
There is potential for the lean hogs to come under pressure in November and December but we should see higher prices in 2010 due to lower supplies and a recovery in demand.
Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For questions or comments, 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.