2010 a break-even year at best for hog producers

“As a profit overall for the year, I don’t think so.”

– JOHN PREUN, MANITOBA PORK MARKETING CO-OP

anitoba’s long-suffering hog farmers might finally get some financial relief from the marketplace this year but hopes for a full recovery remain a distant dream.

Hog forward contracts for 2010 indicate prices above $140 per 100 kg for May, June and July.

As a result, producers who have been losing money for over two years may see profitable returns this summer, according to industry forecasts.

But profitability in the middle of 2010 may not be enough to offset predicted losses in the first and fourth quarters.

At best, producers will end up level for the year, said John Lawrence, an Iowa State University livestock economist.

“2010 is, at this point in time, shaping up to be about a break-even year,” said Lawrence from his office in Ames, Iowa.

That’s in the U. S., where hog producers don’t have to worry about a strong dollar and country-of-origin labelling (COOL), as their counterparts in Canada do.

Canadian producers are being urged to treat signs of a market recovery with caution.

“There is still a great deal of uncertainty relating to 2010 market hog prices,” Tyler Fulton, Manitoba Pork Marketing Co-op’s risk management director, wrote in a recent market outlook.

“Producers should consider limiting their price exposure for (the) February-April time frame at current prices, as they represent fair value given the numerous positive and negative risks that could impact the market conditions.”

In a recent radio interview, co-op CEO Perry Mohr called the recent market rise “a welcome surprise, obviously, given the fact that producers have endured such a long period or zero, or lack of, profitability.”

Although prices will continue soft through early 2010, producers have a chance to lock in profitable prices for the summer months, Mohr said.

“PURGATORY”

Unfortunately, a brief return to profitability won’t be enough to enable to recover from prolonged losses, said Lawrence.

“We’re in this purgatory, if you will, where operations will cash flow (and) be able to pay their bills but not rebuild any equity,” he said.

“The only thing that would give us some long-term rebuilding of equity would be as demand grows away from this supply.”

Fulton noted pork demand increased by nearly four per cent in 2009, the largest gain in over 10 years.

But increasing pork sales depends more on boosting exports than raising domestic consumption, Lawrence said.

That’s where the U. S. has an advantage over Canada. A weakening greenback and a stronger loonie make American pork more price competitive on the world market, he said.

The U. S. Department of Agriculture recently reported U. S. hog and pig inventories were down slightly but not significantly, despite tough times in the industry.

In a Dec. 1 report, USDA estimated the number of hogs was down two per cent from the previous year. The June-August 2009 pig crop was down 1.6 per cent. Farrowing intentions for December 2009 to February 2010 were 1.9 per cent lower.

The declines are not enough to signal a price recovery, said Lawrence.

“The report will likely be viewed as neutral to bearish by the trade,” he wrote in a commentary.

John Preun, the Manitoba Pork Marketing Co-op’s president, said $140 per 100 kg is about break-even for the average Manitoba hog producer.

But producers can expect to lose $20 per hog for the first quarter of 2010. So a few profitable months after that won’t necessarily mean a profitable year, said Preun, who farms near Selkirk.

“We’ll have some profitability during the year but certainly as a profit overall for the year, I don’t think so unless things change in the summertime,” he said.

“We need a prolonged period of profitability to change the whole mentality of the industry. Right now, guys are just in survival mode.”

Other factors point to a mixed outlook for hog producers in 2010, Fulton wrote in his monthly analysis.

A record-large 2009 U. S. corn crop and lower livestock production have calmed fears of a feed price rally in 2010, he said.

But an expected decision in May by the U. S. Environmental Protection Agency to increase the allowable ethanol blend rate in gasoline to 15 per cent from 10 per cent could trigger a spike in corn prices.

Canada’s WTO challenge to the U. S. COOL rule will not be resolved until 2011. However, U. S. packers may seek to source more hogs from Canada, despite COOL, if hog supplies diminish, Fulton said. [email protected]

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