If Manitoba pigs keep pouring into the United States, in about a year slaughter numbers will reach the perilous levels of late 1998 when hog prices crashed, says agricultural economist Ron Plain.
“Even with the Crete, Nebraska, plant at double shift, we will need some gain in slaughter capacity elsewhere or some reduction in live hog imports from Canada, otherwise slaughter capacity will be a problem in the fourth quarter of 2001,” the University of Missouri economist said in a recent commentary.
Many analysts expected that the new Maple Leaf slaughter plant in Brandon would soak up many of Manitoba’s slaughter and weanling exports.
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However, the number of pigs shipped south between January and July 2000 was the same as it was in the same period last year.
But Manitoba agriculture department hog watcher Janet Honey said she expects Brandon to soon start keeping more hogs home.
“It looks as if the trend will be down.”
There are several reasons:
- Maple Leaf’s recent contract drive should keep some of the slaughter pigs from crossing the border.
- Maple Leaf’s Brandon plant recently moved from four days of slaughter a week to five days.
- New feeder barns built in Manitoba this year may keep more weanlings at home, Honey said, cutting weanling exports to the U.S. by 20 to 30 percent.
Manitoba sent about 1.3 million weanlings to the U.S. last year. Honey said it is a tempting market to Manitoba producers because many U.S. producers are willing to pay a premium for the province’s high quality weanlings. Plain sees storm clouds ahead because of increasing U.S. hog production and a lack of expansion in the slaughter business.
John Lawrence and Alan Vontalge of Iowa State University, in their review of the U.S. Department of Agriculture September hogs and pigs report, have a similar analysis. Slaughter capacity and pork demand in late 2001 will determine whether this leads to a price crash as in 1998.
While there have been announcements of capital investment in expansion and one new plant, “the bottom line is that we will be very close to the edge of having enough capacity. If we exceed the capacity, prices will suffer.”
As for pork demand:
“If pork is moving through the system at prices high enough for packers to pay overtime and still be profitable, they will push their plant to the maximum.
If much of the extra supply is going into cold storage rather than to the market, packers have less incentive to process more hogs and add to the wholesale supply.”
While the situation can change, producers can consider methods of protecting their revenue.
“Having a marketing contract, a cash forward contract for delivery, or being part of a marketing group that has clout with packers, can help assure market access. Hedging with futures can help offset futures market price declines, but does not protect against basis risk and market access concerns.”
In some cases, producers might choose not to produce in November and December 2001. If so, those breeding decisions are coming up quickly, Lawrence and Vontalge said.
