Live pigs still risky business
Are North America’s hog producers gluttons for punishment?
After taking a beating last winter, most analysts believed producers would start liquidating their breeding stock.
Normally in the livestock cycle numbers peak, prices fall, producers reduce their breeding herd, fewer market pigs are produced and prices start to rise.
But the United States Department of Agriculture June Hogs and Pigs report showed that U.S. sow numbers were not falling at the pace needed to raise prices.
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Slaughter data in the weeks following the report show sow slaughter is down a modest two to three percent.
Glenn Grimes and Ron Plain, agricultural economists at the University of Missouri, say the numbers show that a high percentage of the hogs are now produced by farms, large and small, that don’t wish to reduce production.
“This, along with productivity growth, will hold production close to last year,” they said. And that means prices in Canada will be below the break-even point of about $130 per 100 kilograms for months to come.
What do you do if you are a farmer who thinks it’s madness to continue production at a loss?
You might follow the lead of Dwayne Kruger of Thorsby, Alta., who has replaced his herd with a paper one.
In early July he sold his sows, keeping some gilts on hand to breed once the market turns around.
Through the Western Hog Exchange, the marketing arm of Alberta Pork Producers, he purchased contracts for the production he would have had in early 2000. Similar contracts are offered by the Saskatchewan and Manitoba hog marketing groups.
The price was about $93 per ckg. If he fed pigs all fall and sold them at that price, he’d lose money.
With the futures contract, if the price hasn’t changed by the time it expires, he will lose only administration costs when he sells it.
But he figures if a lot of people follow him, the reduction in market hogs will increase futures prices and he will sell the contract at a profit.
There is a risk that the futures market could unexpectedly tank and you’d lose money when you sell the contract. However, the likelihood is low that the market will fall even more.
Before acting, you’ll want to discuss this option with experts from the marketing groups and financial advisers.
But it might be a good alternative to watching the feed bill mount.
