Profits seen as hog prices rise, feed dips

Return of $30 to $50 per hog | Hog prices may decline this fall, but corn is also expected to drop

Severe stress in the Canadian hog business is easing as profits replace losses, but many farmers still walk a knife’s edge.

If today’s trends continue, most producers should be on the road to recovery, but everything depends on factors beyond farmer control.

“After five years of ‘next year will be better,’ we’ve gotten a little guarded,” Perry Mohr, general manager of Hams Marketing agency, said in an interview.

“It’s going to take a while yet.”

Hog farmers are experiencing a rare reversal of the pattern over the last few years of escalating crop prices that wiped out profits despite attractive hog and meat prices.

In the last few months pork prices have hit record highs, hog prices are extremely high and the main feed grain prices have been dropping.

Hog producers make their money mostly on the spread between slaughter weight prices and feed grain prices and both have been moving in the right direction for them.

Since mid May, Chicago August lean hog futures have risen about 10 percent to about $97 US per hundredweight, while September corn futures have weakened by about 10 percent, from around $5.80 per bu. to $5.30.

For hog producers, that spread produces a return of about $30 to $50 per hog, which is about how much many were losing per pig in late-summer, early-fall 2012.

Mohr said most analysts expect hog prices to decline into fall, which is traditionally the weakest period of the year, but the decline doesn’t look overly harmful.

At the same time, the U.S. corn crop, which is the foundation for North American feed grain prices, is looking far better than many expected during spring, when seeding delays made its outlook questionable. The lower corn price will likely depress the price of all feed grains.

“We are expecting some softening of feed grain prices,” said Mohr.

“Your cost will likely go down when the new crop comes in.”

The present outlook suggests hog producers will retain at least break-even prices in the fourth quarter and into early 2014, then profitable prices next spring and summer.

For Canadian producers, another plus is the weakness of the loonie, now trading around 95 cents U.S. The lower value currency means producers and packers get more loonies when they sell hogs or pork to American buyers.

However, a number of wildcards lie in front of farmers:

  • Porcine Epidemic Diarrhea Virus continues to spread in the U.S., with North Carolina now being affected. Production losses due to that would strengthen hog prices.
  • Impact of high pork prices: Consumers have been paying high prices for meat, including pork. How that affects future demand is unclear.
  • U.S. economy: as the U.S. economy recovers, most expect consumers to have more ability to buy meat, which should be positive for demand.
  • However, as the U.S. Federal Reserve bank withdraws support for markets as it tapers quantitative easing, credit, spending and confidence might weaken, hurting meat demand.
  • U.S. pork exports: Pork exports were weaker than expected this spring, helping depress prices. But in recent weeks they have almost caught up to year-before levels, making the supply-and-demand outlook more bullish for pork prices.

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