Hog herd numbers are shrinking rapidly in North America, especially in Canada, and that’s likely to save the industry’s bacon.
“I think this fourth quarter is just going to be generally depressing, not a disaster like in 1998,” said University of Missouri hog industry analyst Ron Plain.
“It isn’t going to mean good hog prices. We’re going to be losing money. But it isn’t 1998 all over again.”
Plain said slaughter numbers and government herd size estimates mean that producers will probably squeeze through the next few months without a price collapse.
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Statistics Canada and the U.S. Department of Agriculture have found that producers are sending sows to slaughter and reducing herd sizes.
In Canada, the sow decline is about eight percent while the United States has a five percent drop from last year.
And there is no rush of hogs to the packer to gum up the gears and prevent sow liquidation.
“So far, the slaughter numbers have been running a bit below what we expected based on some of the summer inventory number surveys, so it looks like we’re going to get through this quarter without a disaster,” said Plain.
The reductions on both sides of the border come from some shared reasons, and some unique to Canada.
“Hog producers are losing money,” said Plain, explaining the drop in the U.S.
“They’ve lost a lot this year. They’re getting tired of it.”
Good profits were made in 2006 and 2007, which caused producers to expand their herds. That led to the supply glut, which has helped drive down prices.
U.S. farmers were also hit by much higher feed costs, which caused a profit squeeze to become major losses as corn and soybean meal prices soared.
Canadian farmers were also hit by more expensive feed, but the generally stronger Canadian dollar through the first half of 2008 kept feed costs relatively lower, while also keeping the North American hog price lower in Canadian dollar terms.
In the past few weeks Canadian hog prices have not fallen as much as American hog prices because of the decline of the Canadian dollar against the American currency. Canadian herd reductions are occurring for another reason.
Country-of-origin-labelling is sending a chill through U.S. packers and U.S. feeder barn operators, convincing them to avoid Canadian hogs for fear of fines and other penalties after April 1, when the COOL regulations will be fully imposed.
Canadian weanling producers who sell to American buyers are slashing their herds right now, and producers who sell slaughter hogs to American plants, especially Ontario and Manitoba farmers, are reducing their sow numbers quickly.
The major reduction in both U.S. and Canadian herd sizes should soon have positive price results, Plain said.
November should be the bottom of the market with predictions that prices will rise through December, January and February.
“This is going to be the peak of the hog slaughter cycle, the bottom of prices,” said Plain.
