In a startling turnaround, Canada’s hog industry could be headed back toward the break-even point, and even profitability, faster than most observers expected.
The U.S. composite pork cutout has been setting records and was at $93.89 US per 100 pounds Aug. 14, up from the low $70s a year ago.
“I don’t think I have ever seen prices this high,” said Kevin Grier, a market analyst with the George Morris Centre.
This spring, producers were struggling with high feed grain prices and inadequate hog prices. Racking up huge losses, they were liquidating their sow herds.
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But soaring U.S. pork exports pushed pork prices high and that lifted hog prices more than expected this summer. In recent weeks feed prices have fallen, so producers are surprised to find themselves headed back toward profitability.
With year-to-date U.S. production up nine percent and domestic demand stable at best, all that pork has to go somewhere.
“With this much increased production, you typically think that pricing should be down. So the only plausible other explanation is exports,” Grier said.
According to the U.S. Meat Export Federation, which crunched the agriculture department’s June figures, the volume of pork and pork variety meat exports was double the same month last year, with 24 percent of the country’s production now sold abroad.
Shipments to China and Hong Kong in the first half of 2008 were up 324 percent over last year. Mexico and Japan were up 23 percent and 21 percent respectively, while third-place buyer Russia saw gains of 137 percent.
The lower U.S. dollar partly explains the picture, but additional factors are packer profitability, abundant hog supply and industry efforts aimed at opening new markets, said Grier.
Whether Canadian producers become profitable in the near future depends largely on the price of grain, although the loonie’s slump to around 93 cents to the greenback has helped raise hog prices, he said.
The price in Manitoba and Ontario had climbed to about $170 per 100 kilograms Aug. 15, up from about $154 Aug. 1 and $140 last year at the same time.
“We’ve seen highs of over $200 per (100 kg), so we’re nowhere near our peak,” said Grier.
The Chicago hog futures market forecasts stronger prices next year. Early this week the May 2009 contract traded around $90 US per 100 lb. compared to the October 2008 contract price of about $75.85.
Built into the futures prices, he added, is the expectation that the herd liquidation will continue amid losses because of higher feed grain prices.
“It’s a Catch-22. The only way I can picture pricing this high is if there is a contraction in the herd,” he said. “That only comes with continued losses. And nobody can predict export market demand.”
