With improve prices forecast by June, the thinking is the worst may be over

Hog values in Canada have been trading in a narrow range but we may see prices percolate higher into early summer. Supplies of market hogs will be down from earlier expectations as per the recent USDA hog and pig report. Low returns in the hog industry have caused the breeding herd to contract and this may continue for the first half of 2009.

The demand situation is still very uncertain, but the thinking is the worst is behind us. For example, there are an estimated 31 million Americans on food stamps, which is down from the record of 31.6 million in September of 2008. Unemployment numbers are still very high but with the U. S. government stimulus package and lower tax program, we may see the economic situation stabilize. Consumers may get back to their regular meat-buying patterns by the end of the year. Cash hog values in Manitoba were trading in the range of $1.15/kg to $1.25/ kg area in early January. Prices are expected to trade in the range of $1.50 to $1.60 by June.

The December 1 USDA hog and pig report was considered mildly bullish. Total inventory was down two per cent in comparison to December 1 of 2007 and the breeding herd was down 2.4 per cent. The market herd was down 2.1 per cent year over year. It is important to remember that hog producers need to have approximately 18 months of negative returns before significant contraction materializes. Therefore, analysts are thinking the breeding herd will not contract further in upcoming months given the overall margin structure.

Pork exports out of Canada and the U. S. have potential to drop 11 per cent to 15 per cent in 2009. This will cause additional pork to be absorbed in the domestic market. Pork is still the most competitive meat and this may help spur on demand from the average household. The market is also bracing for lower production of poultry and beef so all meats are moving through the same contraction pattern in 2009.

Mexico is the largest market for U. S. pork. Prior to the holiday season, Mexico banned imports from 30 U. S. plants due to sanitary conditions targeting packaging, labelling and transportation. At the time of writing this article, U. S. exports to Mexico were starting to resume and the USDA was working desperately to resolve the situation. However, rumours have circulated that this was in retaliation to the U. S. country of origin labelling (COOL) law. If this problem continues for a long period, we may see pork supplies back up in the system and set a negative tone for cash hog values.

I’m expecting hog prices to trend higher into the June time-frame. Therefore, I don’t see the need to be aggressive with forward sales at this time. If the economy starts to rebound in the latter part of the year, the hog prices will likely move in a counter seasonal pattern. Lower supplies and increased consumer incomes will bode well for the hog complex but this could only occur in the fourth quarter. Producers, who have been in the business a long time, know that two or three years of poor returns is followed by two or three years of healthy margins. Depending on the fundamentals and economic situation analysis during April and May, I will be advising the sales program for the back end of 2009.

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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