The warm glow of optimism has faded from hog producers’ hearts as they face chill winds from two directions.
The winter market now looks long and cold, with spring still promising, but with the long range forecast growing colder.
“We’re 30 cents (per kilogram) down in the last four weeks,” said Andy Vanessen, a Picture Butte, Alta., hog producer.
“The outlook for the winter isn’t very good.”
The Canadian hog industry, which had begun showing signs of recovery and revival in the summer, now appears to be sliding again. Between late September and Nov. 1, Chicago Lean Hogs December futures dropped to under $67 per hundredweight from $77. The slump in May futures has been much less severe, falling to $81 from $85, but the 2011 market is not yet showing that it can hold onto the recent rally.
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Winkler, Man., weanling exporter Arian de Bekker said the recent rout in hog prices means producers aren’t able to collect consistent profits to pay off the years of losses and lost equity.
“We’re very cautious and uncertain about what’s ahead of us,” said de Bekker.
“We’re facing a two-edged sword here.”
That two-edged sword has hog prices slashing lower on one side, and feedgrain prices slashing higher on the other side.
Hog profits come from the spread between the market hog’s or wean-ling’s sales price minus mostly feed costs, so when hog prices drop and feed prices increase, hog margins get squeezed.
This fall has seen hog prices tumble, and feedgrain-dominant corn prices shoot higher. The situation is unlikely to reverse the continuing shrinking of the Canadian and prairie hog industries revealed by Statistics Canada’s Hog Statistics –Third Quarter 2010, which was released last week.
It found that the prairie sow herd declined by 4.1 percent between Oct. 1, 2009, and Oct. 1, 2010, with a 3.8 percent national decline.
Hog exports, a major component of Manitoba’s industry, were down 11.6 percent nationally.
The Prairies’ breeding herd has declined dramatically in recent years to 566,000 today from a peak of 730,000 animals in 2004.
In Manitoba, the herd peaked in 2006 at 372,000 animals and has since declined to 317,000, Statistics Canada found. In Saskatchewan, the breeding herd has declined to today’s 87,000 from 134,000 in 2006. In Alberta, it has steadily dropped since 2003 to 151,000 now, from 212,000, in 2006.
The report made depressing reading for Martin Rice, executive director of the Canada Pork Council.
“I think maybe this change in events might cause some people to decide ‘that’s it, I’m finished,’” he said.
“I don’t think we’ve seen the herd stabilize yet.”
Rice said some people who have qualified for the hog industry transition programs, which require farmers to shutter production, have not yet committed to leaving the industry.
A new round of losses would probably force their hand.
Weanling exporters are in a better situation than sellers of market hogs, because weanling prices are based off lean hogs futures prices six months in the future (when the animals raised from the weanlings will be sold) and six month out prices have not slumped nearly as much.
But as high corn prices bite into U.S. hog producers’ profits, weanling demand might subside, Rice said.
“I would expect that that situation will fall back a bit too,” said Rice.
De Bekker said weanling exporters are still eking out profits at today’s prices because they managed to reduce their costs of production during the downturn. They have also been careful to make better contracts with U.S. buyers than the ones some buyers reneged on at the start of the downturn.
He thinks the survivors now will continue to survive, but that depends on hog and corn prices.
“The margins are getting pretty tight now,” said de Bekker.
