Western Canadian hog slaughter plants are operating at or near full one-shift capacity, says Kevin Grier, senior market analyst with the George Morris Centre in Guelph, Ont.
The last few years have seen a major reorganization of Western Canada’s hog industry.
Packing and processing plants saw investments of hundreds of millions of dollars. These caused a temporary overcapacity that sparked bidding wars as packers scrambled for supply to fill shackle space.
The competition helped drive from the packing industry Premium Brands, which sold its Red Deer plant to Olymel of Quebec.
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The bidding competition also increased packers’ interest in getting long-term supply contracts with big hog production operations that were rapidly expanding.
Several years of the fastest growth in North American now has prairie hog production about in line with slaughter capacity.
Brad Marceniuk of Saskatchewan Agriculture said in a report released in November that slaughter capacity in Western Canada is roughly 175,000-180,000 per week.
Reaching one-shift capacity has interesting implications, although it must be remembered that capacity could increase by adding shifts.
We are in the contraction part of the hog cycle in North America.
American production will fall below slaughter capacity and packers there will be forced to increase prices, squeezing profitability.
But if western Canadian packers are close to capacity, they have
little reason to bid aggressively.
This could mean the hog price recovery expected this year could be a little weaker here.
Also, it could mean more prairie hogs will head south for slaughter. If so, how will the always sensitive Americans react?
In other news, the United States Department of Agriculture January crop reports hit prices hard.
Old crop prices were depressed early this week.
USDA’s numbers showed the result of slow exports by increasing the year-end wheat stocks outlook by about two million tonnes.
But some news was positive.
As we report on page 13, the U.S. winter wheat acreage number was smaller than expected. This helped push up new crop wheat futures.
Old crop and new crop futures are now almost equal. At its peak, Minneapolis March wheat was about $1 US per bushel higher than the September new crop contract.
