DES MOINES, Iowa – The rest of 2010 and most of next year are solidly profitable for hog farmers, if they are American, said a leading U.S. hog market analyst.The outlook is less positive for Canadian producers, said Canadian hog farmers and industry officials attending the World Pork Expo in Des Moines, Iowa, last week.“The Americans are back in it. They’re looking at black (ink) for the rest of the year. We’re in the black now, but there’s not as much optimism going forward,” said Ontario Agriculture hog marketing specialist Doug Richards. “Our guys have so much hanging over them, they need a full year of profits. The hole we’ve dug is so deep.”But Richards acknowledged the profit outlook is the best in the last three years.Steve Meyer of Paragon Economics said based on current futures prices, American hog margins should be profitable for the next 15 months.Farmers anxious about protecting their margins because of financial stresses should consider locking in lean hog futures prices and soybean meal prices, Meyer said.But corn could drop further, so farmers wanting to protect today’s relatively low corn prices should consider out-of-the-money call options instead of futures to benefit from a further downturn. He said American farmers should consider locking in soybean meal prices that are at the bottom of what appears to be their new trading range.“How wrong can you be with soybean meal hedged at $250 or maybe even $230?” said Meyer.While corn and soybean meal are not necessarily the main ingredients of prairie hog rations outside of Manitoba’s Red River Valley, corn and soybeans set the price basis for prairie feeds like feed wheat, barley, oats, wheat distiller’s grain and canola meal. Meyer forecasts lower prices for energy crops but higher for protein crops.He thinks the hog price recovery will stay intact, despite the recent pull back from the early spring rally. High rates of sow and gilt slaughter suggest pig and pork supplies will not balloon.“There’s no way, in my mind, that we can be building a sow herd very quickly if A, we’re killing about the same percentage of the sow herd (as in 2009) and B, we’re killing a higher percentage of gilts than we were a year ago.”The U.S. Department of Agriculture predicts average U.S. hog production profits of $16.25 per head. Profits soared to about $40 per head during the sudden spring rally and are now likely above $30 per head.Meyer expects profits to fall into the fourth quarter, when prices are traditionally weakest, but to remain more than $10 per head.Richards said the stronger Canadian dollar weakens hog prices in Canada. Most producers here will experience little better than a break even year, raising worries about long-term viability when there is such a spread between Canadian and U.S. returns.“That’s the biggest fear: that the Americans recover but we don’t,” said Richards.
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