American farmers are only slightly reducing their sow numbers, dragging out the current crisis until at least next summer, analysts say.
The three percent year-on-year decline in sow numbers reported in the U.S. Department of Agriculture quarterly Hogs and Pigs report was slightly higher than most trade expectations, but it wasn’t a big enough surprise to stop the bleeding on Canadian farms.
“This report didn’t give us any reason to think things are going to turn around at the start of next year,” said Martin Rice, the executive director of the Canadian Pork Council.
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“The U.S. is still not into the state of contraction that we have been in since 2005.”
USDA found that there were two percent fewer hogs of all types on American farms on Sept. 1 compared to a year ago, three percent fewer sows and two percent fewer market hogs.
U.S. farmers also intend to farrow three percent fewer hogs from September to November than they did last year, which is eight percent less than two years ago. Also, they intend to farrow three percent fewer sows in December to February than they did last year, which is five percent fewer than in 2007-08.
Oversupply continues
Unfortunately for prices, American hog productivity keeps increasing, with 9.7 pigs per litter this summer compared to last year’s 9.5 a year ago, or about a two percent gain.
The slow decrease in sows and the increase in productivity is a phenomenon that Manitoba Pork Marketing Co-op’s Tyler Fulton has been watching closely.
“Two percent (sow reduction) isn’t going to get us any gain because they’re seeing that amount in productivity improvements per sow anyway,” said Fulton prior to the report’s release.
He said he hoped the sow decline would be more than three percent, expected it would be about two percent and feared it could be less than two percent.
The three percent sow reduction was seen as slightly bullish for the hog market, helping prices rise a little. But it was not enough to turn the market around.
“We need something like five, six, seven percent,” said Fulton.
Rice said the faster sow cull in the Canada is a result of the damage caused by the rising Canadian dollar over the past few years. The Canadian herd has been contracting since late 2005, and producers have been losing money since late 2006, causing the sow herd to drop by more than 15 percent.
But U.S. farmers have been losing money only since late 2007, and much less per pig than Canadians, so they haven’t had a big incentive to mothball barns.
The dropping U.S. dollar allowed U.S. farmers to make profits for four straight years and has cushioned this market decline.
“Their equity situation going into the downturn of 2007 was just so much better than ours,” said Rice.
“They just had a whole bunch more equity to get through this situation.”
The high debt levels of some U.S. farms are also helping keep barns operating that in the past would have been shut down.
“There’s so much resistance to idling facilities because there’s a necessity for cash flow,” said Rice.
Most hog market economists believe the combined U.S.-Canadian sow herd needs to be reduced by 10 percent to balance supply and demand.
