The re-entry of Canadian cattle into the United States might weaken hog prices.
Hog prices are high and no one knows when they will drop.
But packers profits have been tight and they are looking for an opportunity to take down the galloping hog market. The opening of the U.S. border to Canadian cattle might be the trigger.
“They’ve been waiting for this day,” said University of Missouri market analyst Ron Plain about the March 7 expected border opening.
“You can’t expect the packers and retailers to tolerate this forever.”
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Some analysts say hog producers might want to lock in future prices as insurance.
Short supplies of cattle and hogs have forced American packers to bid up live animal prices to attract supply, so their margins have been cramped.
American producers might be making comparatively good money for every hog and bovine they sell to U.S. packers, but the packers have not benefited from the run-up in prices, said Plain.
Meat demand in North America has been excellent for more than a year.
Plain said the Atkins diet effect appears to be keeping meat demand high, but it is uncertain whether this will continue.
“Everyone’s wondering when it’s going to go away,” said Plain.
“History says diets tend to be very faddish. They go through a period where they tend to be very popular, then they fall from the scene. We’re still waiting for that to happen.”
Generally in the year after a sudden surge in prices, as has occurred in the past year, packers widen their margins and take more of the profit from producers and retailers.
That could happen now if Canadian cattle imports make U.S. packers less worried about supply.
“They will tolerate (poor margins) for a while, but then they push their margins out again,” said Plain.
If the opened border means more meat is available to U.S. packers, or some demand shifts from pork into beef, hog packers are likely to take advantage and drive down the prices they pay producers.
Union Securities broker Ken Ball said farmers shouldn’t assume high hog prices will stay. Producers may want to lock in attractive prices before the border opens to cattle.
“You can’t really not sell at $78 because you want $80, and then sell at $70. That would be a disaster,” said Ball.
