It will take some time for the plants to adjust to the new structure under the Country of Origin Labeling regulations
Canadian hog values have been consolidating over the past few weeks. While demand appears to be improving, the Country-of-Origin Labelling law has slowed export movement to the U. S. It appears that plants need a couple months to work the bugs out of the system before trade resumes back to normal. The Canadian dollar has also strengthened tempering export demand for live hogs and pork products. We now find the Canadian market has to absorb larger supplies of market ready hogs. Despite the softer tone in the short term, hog prices are expected to trend higher into summer. Overall hog numbers are expected to tighten between now and July resulting in lower pork production. Retail movement has increased with more consumers eating at home. The economy appears to be stabilizing which should bode well longer term for restaurant demand. Packing margins are slowly improving as cutout values percolate higher.
It is important for Canadian producers to watch live hog exports over the next few months as this will have a major effect on domestic prices. Total hog exports to the U. S. during February were 525,454 head, compared to 932,997 head during February of 2008. This percentage change is reflective in all weight categories; however, hogs for immediate slaughter were 84,574 head, down a whopping 67 per cent from last February. It will take some time for the plants to adjust to the new structure under the Country-of-Origin Labelling law. The industry was expecting slower exports because of the lower inventory numbers but this decline is much sharper than anticipated. Live hog exports should improve later in the year but we could see some pressure on the domestic market until normal trade patterns resume. Canadian pork exports to the U. S. were 22,219 mt during February, down slightly from year ago levels of 23,856 mt.
U. S. year to date pork production is running 4.9 per cent behind last year while the slaughter pace is lagging by 5.2 per cent. Production is lower than earlier expected and this will continue due to lower farrowings in the first quarter of 2009. U. S. pork exports were 4.668 billion pounds in 2008 and are forecasted to be 4.050 billion pounds in 2009. We may see export projections increase later in the year due to strong demand from Southeast Asia (excluding China) and Mexico.
The cash market remains firm moving into barbeque season. Prices in Peoria were quoted in the range of $34/cwt to $35/cwt; values in Western Canada were reported at $1.55/kg for nearby delivery and $1.65 for August shipment. Prices for immediate delivery have improved but the deferred market has come under pressure. We will likely see this trend continue as August lean hog futures have been trading near historical highs. The overall demand situation does not justify hog futures near historical highs. Canadian producers are also facing the risk that hog exports do not resume back to normal with Country-of-Origin Labelling. Exports of live hogs and pork products could be further tempered by the stronger exchange rate. Therefore, producers should look at taking some price protection on their August through December marketings.