Hog prices are recovering from their mid March lows, but they need to climb a lot higher to cover the increased costs of production.
That means more sow culling in Canada and the United States.
We know that Canadian producers have been culling their breeding stock for a while. The latest numbers show that as of Jan. 1, Canadian breeding stock was down about two percent from the same point in 2007 and down 3.5 percent from 2006.
The federal sow cull program will remove 150,000 sows from the breeding herd, or about 10 percent.
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The United States had not begun culling as of the U.S. Department of Agriculture hogs and pigs report for March 1. It showed the breeding herd up slightly from the same time a year ago.
However, culling in the U.S. is said to have increased in recent weeks.
Slaughter data from the USDA for the three weeks that ended March 29 show sow slaughter averaged 9.6 percent above a year ago.
In a Dow Jones survey last week, market analysts said the U.S. breeding herd would need to decline by six to 10 percent to force hog prices to a break-even level of about $60 US per 100 pounds.
Strong exports and the expectation of increased domestic demand as the weather warms and people start barbecuing helped cash hog prices in the Midwest rise to about $50 on March 21, up from $41.50 two weeks before.
Analysts say booming U.S. pork exports, up 41 percent in the first two months of the year, were critical to the price strength, given strong production. U.S. hog slaughter is running 10.4 percent ahead of last year at this time and pork production is up 10.9 percent.
Export highlights include a 361 percent increase in shipments to China and Hong Kong to 74,745 tonnes in January and February.
Exports to Canada rose 28 percent to 26,955 tonnes and the European Union bought 5,275 tonnes, an increase of 83 percent. Japan’s imports edged four percent higher to 64,927 tonnes.
The latest data on Canadian exports is in dollars, not tonnes.
It shows the value of Canadian pork exports is down nine percent because of reduced sales to the U.S., Japan and Australia, but sales are up 108 percent to China-Hong Kong and 93 percent to Russia.
Hog prices could rise to a profitable level by next year if sows are culled, gilts are not bred and the export pace is maintained.
Jim Long, a hog market commentator on the website Farms.com, says U.S. hog prices are much lower than they are in Europe. When you also consider the weak U.S. currency, that should give the U.S. a strong advantage in international pork markets.
He also notes that weak profits will reduce cattle and poultry numbers, bringing down what has been a record amount of meat available in the U.S.
It is possible to paint a strong, bullish scenario for prices next year, but there are offsetting factors that should also be considered.
There is still the potential that the economic slowdown in the U.S. and rising oil costs could cause consumers to scale back their meat buying.
Also, China is encouraging hog production after disease decimated a significant portion of its herd, pushing domestic pork prices to unprecedented highs. Its efforts were set back by the damaging snowstorms that hit central China this winter, but Chinese officials expect production to rise this summer. If so, its pork imports would decline.
Still, over time, hog prices will rise to a point where they cover higher production costs caused by high feed prices.
For struggling Canadian hog producers, it can’t happen soon enough.
