Factors that led to weaker than expected hog prices in Canada this year might recede in the coming months, says a Saskatchewan hog policy analyst.
But challenges remain in the future for hog producers.
Mark Ferguson of Sask Pork said hog prices suffered earlier this year when the Canadian dollar soared and a surplus of chicken pressured meat prices lower.
“The exchange rate at one time about four months ago was up to about 91 cents US and now it has stepped back to about 88 cents,” Ferguson said.
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“Whether that trend continues or not, I don’t know, but if it keeps going down or even stays steady, that is a lot better.”
Also earlier this year, the spread of avian flu frightened consumers around the world, particularly in Asia and Europe. People ate less poultry and supplies in the United States that were normally exported began building up. The surplus poultry began to pressure the price of other meats.
“It looks like the glut of meat is moving along. When I look at (U.S. Department of Agriculture) meat market reports, it looks like stocks have been coming down the last couple of months,” he said.
Good demand in barbecue season, strong pork exports and some herd disease problems combined to improve the supply-demand situation in early summer and push hog prices higher.
In the usual seasonal trend, prices are now pulling back. The question is to what degree the intense heat wave that enveloped much of the U.S. in recent weeks hurt hog weight gain.
Looking to the rest of the year, American university-based hog market analysts have made the following price outlooks.
Ron Plain and Glenn Grimes of the University of Missouri expect 51-52 percent lean hog prices in the $45-$48 US per 100 pounds range in the third quarter. They forecast $42 to $45 in the fourth quarter.
Chris Hurt of Purdue University put his third quarter estimate at $46 to $48. For the late fall and winter, he sees prices around $46.
Japan could infuence market
Ferguson said the recent limited reopening of beef exports to Japan could indirectly affect hog prices. Increased beef exports could trim domestic
U.S. beef supplies and help support the price of all meats, but on the other hand, it could shrink the amount of pork being exported. Record U.S. pork exports this year have been a big price support factor for hogs.
Grimes noted at the World Pork Expo in Des Moines, Iowa in June that the hog industry will face a problem in 2007 of supply growing faster than consumption.
The industry’s efficiency, as measured by increased pigs per sow, is growing by 2.5 percent per year, but U.S. domestic pork demand is growing only 1.5 percent per year. Grimes believes this factor could cause 2007 average prices to be lower than this year.
With these outlooks as the market foundation, Canadian producers must also watch currency exchange rates.
Late last winter some currency analysts speculated about the possibility of the Canadian dollar riding high energy prices to reach par with the American greenback. So far that hasn’t come true. Indeed, this summer the loonie retreated to the high 80 cents US range. Most major Canadian banks do not see a sustained move into the 90s for the remainder of this year.
CIBC forecasts that the American dollar in the third quarter will weaken and the loonie will average 91.7 cents before pulling back in the fourth quarter to 88.8 cents.
The Bank of Montreal’s forecast is the most bullish of the big banks, putting the Canadian dollar in the third quarter at 91.5 cents and about 92 cents in the fourth quarter.
RBC Financial forecasts an 87 cent loonie in the third quarter, dropping to 85.5 in the fourth.
Scotiabank also sees 87 cents in the third quarter, but thinks it will rise to 88.5 cents in the fourth.
