Stronger Canadian dollar cuts into hog profits

Stronger Canadian dollar cuts into hog profits

More supply coincides with less demand in the fall

Canadian hog producers posted profits during the summer months, but the market outlook heading into the fall is filled with uncertainty, Perry Mohr, general manager for Hams Marketing Services said.

“From mid-May to present, I would suggest that most producers have made money,” he said. “However, I think people are kind of getting disillusioned about the price being as high as it is and the talk about feed prices going down. It’s true when you talk about the new-crop prices, but right now corn and soybean prices are still relatively high if you’re buying stuff in someone’s bin today.

Mohr said hog prices have begun a downward trend, dropping $10 per 100 kg the last few weeks. According to Hams Marketing Service’s weekly hog prices, Signature#3 hogs dropped from $191.69 per 100 kg during the week ended July 5, to $184.21 per 100 kg during the week ended August 2.

“Ironically, part of the decline in prices is due to the Canadian dollar moving from roughly 94 U.S. cents a few weeks ago to around 96 U.S. cents,” he said. “The second component is that cut-out in the U.S., which hit record levels a few weeks ago, has come off considerably. Packers went from making US$20 per hog, to losing US$10 per hog in a short time. They’ve adjusted cash bids to account for that.

“Hog supplies will also increase gradually into September and October, which corresponds with a decrease in demand for pork,” Mohr added.

Supplies typically increase during the fall, because the cool weather allows hogs to reach their market weight quickly.

However, the biggest factor for the downward trend seen in hog prices is coming from the 2013-14 U.S. corn crop, which is on pace to produce a record 13.95 billion bushels, the USDA said.

According to the Chicago Board of Trade’s closing numbers for August 5, September U.S. corn futures were at US$4.6925 per bushel. With favourable crop-growing conditions forecast for the U.S. Corn Belt, prices are expected to continue to drop.

This means it will be cheaper to feed hogs, resulting in a decrease in hog prices.

“We know there is a record amount of corn acres planted and we fully expect corn prices to be US$5 per bushel or less for a good part of next year,” Mohr said. “Based on the fundamentals we have a handle on now, it will decrease hog prices.”

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