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Hog Prices Improving For 2010

U. S. Hog Inventory Sept 1

All hogs and pigs Kept for breeding

Market hogs

Under 60 pounds

60 to 119 pounds 120 to 179 pounds

180 pounds and over 2009 as % of 2008

97.7 96.9

97.8 96.3

97.9 98.6

99.7

Hog prices will likely stay under pressure for the remainder of 2009 but the fundamentals are starting to look positive for the first half of 2010. Low prices have discouraged production and analysts expect severe contraction to continue. The January through March time frame should start to show improvements in domestic and export demand. In addition to lower hog numbers, beef supplies will also be down sharply in the first and second quarters of 2010, which should bode well for the overall meat complex. Hog producers have suggested that the most profitable period in the hog feeding has come after the most devastating losses. This should renew some enthusiasm longer term, but the industry still has some pain to absorb over the next couple months. The Canadian dollar is expected to trend higher and has potential to reach historical highs from 2007. This will temper additional price strength for local producers.

Cash hog prices in Western Canada have been floating near $0.95/kg over the past month. At the same time, prices in Peoria were hovering at $29/cwt. This appears to be the downside potential in the short term. The industry on both sides of the border is moving through a severe contraction phase. The September 1 USDA Hog and Pig report showed all hog and pigs down 2.3 per cent from last year and this trend should continue into the first quarter of 2010. Sows farrowing from September to November are expected to be down three per cent; December through February 2010 farrowing intentions are also expected to be down 3.1 per cent.

Hog marketing weights have been increasing causing fourth quarter production to come in larger than anticipated. At the same time, additional supplies are being pushed through retail channels due to sluggish exports. While the downside is limited, the market will have difficulty maintaining any strength in the short term with these large supplies overhanging the market.

In the first quarter of 2010 the US domestic slaughter has potential to be down 3.5 per cent from 2009. At the same time, export demand should start to improve resulting in lower supplies available for the domestic market. The U. S. is also poised to move out of recession and consumer incomes should start to improve. Domestic North American demand should recover and inflationary factors will also underpin hog and pork prices.

Canadian hog producers should continue to look at taking some upside protection on the Canadian dollar. If the loonie moves above the par level with the U. S. greenback, there is potential to test the historical high at $1.1043, up from the current level of 97 U. S. cents. U. S. hog prices have potential to gain $15/cwt from January through June, but the stronger Canadian dollar will eliminate the price benefit. Forward contracts for Canadian producer for the April through June time frame range from $1.20/kg to $1.35/kg. It may be prudent to take some protection using forward contracts if producers are not hedging their current requirements.

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.

About the author

Columnist

Jerry Klassen

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Products Ltd. and also president and founder of Resilient Capital, a specialist in commodity futures trading and commodity market analysis. He can be reached at (204) 504-8339 or visit his website at www.resilcapital.com.

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