It is hard to say much about grain markets these days beyond the obvious fact that weather is dominant.
Meteorologists appear to be having a particularly difficult time making forecasts. Warnings of frost in Canada and the United States come out one day and are dropped the next, causing the market to gyrate.
So let’s look at a market that is a little more stable – hogs.
Statistics Canada reported recently that Canada’s breeding herd continued to expand, although at a slower pace.
Read Also
Green lentil market oversupplied
Farmers in Western Canada can expect price pressure on their new crop of green lentils, as the available supplies among the world’s major lentil-growing nations increase significantly.
As of July 1, the breeding herd was up 2.6 percent over the same time the year before and the West’s breeding herd was growing slightly faster than the national average.
It is surprising that Canada’s hog industry has grown steadily for years despite several periods of low prices that slashed producer incomes.
Those unprofitable periods caused American producers to cut their breeding herd. As of June 1, the U.S. breeding herd was down by two percent from the year before.
Yet pork production in the United States has grown. Part of the reason is more efficient production resulting in more pigs per sow. The other reason is increased imports of Canadian feeder pigs.
Imports of pigs to be finished in the U.S. increased 24 percent during the first six months compared to 2003 and averaged nearly 110,000 head per week.
Pork production is being encouraged by strong demand. High beef prices in the U.S. make pork attractive to consumers. Exports have grown as Japan and other Asian countries look for meat to replace the beef that has been blocked by BSE trade restrictions.
A report by Chris Hurt, livestock economist at Purdue University, says that American producers might start to rebuild their herds based on the hope that today’s strong market might continue into 2005.
He noted that the biggest cuts in the American breeding herd came early this year when it looked like feed costs would be sky high. But now, with a record corn crop and near record soybean crop nearing harvest, feed costs have fallen, increasing the likelihood of profitability for hog producers.
If he is right and U.S. producers start adding gilts to the breeding herd this fall, that would lead to more market pigs in the second half of 2005. It is hard to say how increased supply in 2005 would affect prices, but Hurt notes that even small supply changes seem to generate large price swings these days.
So he urged caution in breeding herd expansion, pointing out that cheap feed might not be so plentiful in the fall of 2005 because a repeat of this year’s bumper yield is unlikely and competing markets for corn, such as ethanol and industrial production, are increasing.
If the traditional four year hog cycle holds true, he said, 2004-05 could be profitable years and 2006-07 could be difficult.
The wild cards in the forecast are the U.S. trade challenge of Canadian pig imports, BSE trade restrictions, currency fluctuations and industry restructuring.
If duties are applied to Canadian pigs it would be disastrous for Canadian producers but increase the likelihood of profitability in the U.S.
BSE-related beef trade restrictions are supporting pork demand and prices. Resolution of the restrictions will affect the meat market, but how depends on whether the various Canada-U.S.-Asia disputes are settled together or separately.
If the Canadian dollar continues to appreciate compared to the American currency, then Canadian pig exports to the U.S. might slow, although the run-up in the loonie in the last year hasn’t impeded the flow south.
Finally, Hurt notes, if the expanded production that came with the industry’s consolidation into fewer, but much larger production units has run its course, then margins might be more positive in the industry than they have been in the last five years.
