Price discovery in the Canadian hog market is clouded by consolidation that has led to a handful of buyers, each with their own quirks of pricing, says the executive director of SPI Marketing Group.
Don Hrapchak told the Saskatchewan Pork Industry Symposium last week that comparing the returns from doing business with the four big prairie packers was almost impossible.
“The term value discovery should be used to replace our goal of price discovery,” Hrapchak said.
“It doesn’t matter who is paying the highest price, it is how much money you are actually putting in your pocket.
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“Each company has different prices, different grading grids and bonuses. They all have to be taken into consideration.”
It is a far cry from the 1970s and ’80s when there were several packers in each province that bid against each other for the hogs offered by the provincial marketing board.
A made-in-Canada price was illuminated through the auction process.
But then international competition created pressure for economies of scale and the packing industry consolidated until today there is generally one large slaughter plant per province. Auctions don’t work when there is only one buyer, he said.
That forced the industry first to base western Canadian prices on the Toronto market, and eventually directly on the American hog market. But that is more complicated than it sounds.
Each Canadian packer follows one of three U.S. carcass markets – Iowa-Southern Minnesota, National Base and Chicago Board of Trade calculated. These carcass markets do not move in unison.
Also, there are differences between what is considered a carcass in the United States and in Canada. For example, the Canadian carcass has a head while the U.S. one doesn’t.
There is also the conversion from the U.S. price per 100 pounds to the Canadian price per 100 kilograms.
And there is the constantly fluctuating currency exchange rate.
Hrapchak said the result is a murky price discovery process.
But the packers are not benefitting from the situation. Ample hog supply and weak demand means packers are also price takers these days. Retailers are the only ones making money in the current market, he said.
