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Hog Prices Turning Around

Cash hog prices in Peoria were reported at $34/ cwt in mid-November, up from the lows of $29 in October. At the same time, Canadian prices in Manitoba were reported at $1.05/kg for nearby delivery, up approximately $0.10/ kg from a month earlier. The market is starting to realize an increase in demand while supplies are on the decline. These last two years have been extremely difficult for producers and many hog operators have gone out of business. However, the worst is likely behind us and we will likely see stronger prices and better margins in 2010. The hog complex is known for going through periods of negative margins followed by periods of positive margins. It is impossible to expect steady returns given the nature of the hog market but hog prices appear to be in the process of trending higher, which should bode well longer term.

Statistics Canada reported total hog inventories as of October 1 at 11.8 million head, down from 12.7 million last year. Total sow numbers were down 4.4 per cent from last year at 1.3 million. Farrowing intentions for October through December were down 6.4 per cent from 2008 and January through March intentions are expected to be down 3.6 per cent. Total hog exports during the third quarter were 1.6 million, down 27.2 per cent in comparison to the same period of 2008. Total domestic hog slaughter during the July through August timeframe was up 5.9 per cent from last year.

The Canadian hog industry surged after the Crow Rate was eliminated. Our industry was essentially built on the three pillars, which include low cost feed grains, a weak currency and the U. S. market. The competitive advantage has eroded with the higher feed grain prices, a currency near par to the U. S. dollar and U. S. country-of-origin labelling. This is the 19th consecutive quarter for Canadian sow herd contraction.

While live hog prices are expected to recover in 2010, it is difficult to project whether Canada can have a sustainable hog industry much beyond our domestic demand requirements. There is potential to expand market share in Japan, China and Southeast Asia, but sudden trade barriers or product requirements can be limiting factors. Talking with some “older hog producers” they have told me the industry always turns around and moves through the boom and bust cycles, the key is to make sure you can make it through the tough times. Perhaps, the thrill of the ride is what entices these “old time producers” to stay in the business. The market appears to punish producers that enter the industry, but are not prepared for the long haul.

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