Hog futures have bounced back from multi-year lows, but the industry is still struggling.
Chicago October lean hogs closed on Aug. 12 at $43.98, the lowest price since 2002. On Sept. 14, they were trading around $51.50, better but still unprofitable.
The April contract had dropped to below $54 in early August but was trading near $60.50 by Sept. 14.
Prices had been driven down by the glut of pork that developed when the recession weakened export and domestic demand and some countries limited pork imports from North America over fears that associated H1N1 with pork.
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When prices bottomed in August, American pig producers finally got the message that production had to be reduced to match the lower demand.
To Aug. 29, the latest data available, American producers for three consecutive weeks sent more sows to slaughter than the previous year.
Canadian producers had already shrunk their breeding herds, 2.4 percent in the last year and 9.1 percent in the last two years.
In the U.S., the breeding herd declined only 2.6 percent over two years.
Analysts say the breeding herd needs to shrink as much as 10 percent.
Some worry that the futures price rally, especially in the 2010 contracts, sends the wrong message and could stop the much needed liquidation.
Last week’s rally was supported by the weaker U.S. dollar, which could help pork exports, and U.S. agriculture secretary Tom Vilsack’s promise that the agriculture department would buy some surplus pork this fall to support pork prices.
Livestock producers are also happy to see big feed grain crops that should lower their costs.
We hope American producers do not develop a false sense of optimism. Demand is still weak and H1N1 remains a wild card. The breeding herd must shrink more before we can confidently predict a return to profitability.
