Market forecasts throw pork producers a bone

While feed prices have nibbled at margins, producer groups and marketers say the signals are good for pork producers in 2021

Pork producers say profitable prices are a welcome change, but the disconnect between farmgate prices and cutout values needs to be addressed.

Margins look good for pork producers — and so do the market forecasts, despite high feed prices cutting into farm profits.

Both cash and futures values have been in a steady climb since February, according to Bill Alford, general manager of [email protected] Marketing Services Co-op.

“We haven’t seen these values since 2014,” he said, noting the “exceptional” market conditions and record prices of that year due to the hit to U.S. herd numbers from porcine epidemic diarrhea.

Why it matters: Current prices are a pleasant contrast from last year, when processing struggles from COVID-19 sent hog prices spiralling.

The co-op put weekly prices for the week ending April 17 between $219.63 and $236.80 per hundred kilograms (ckg), well above both three-year and five-year averages. As of April 17, the weekly [email protected] cash price sat at $221.79 per ckg, over the three-year average of $147.31 per ckg and five-year average of $146.99 per ckg.

The price surge is largely demand-driven, Alford said, along with a tighter hog supply in the aftermath of COVID-19 processing issues last year and slightly higher disease problems in the U.S. also hitting herds.

“Particularly in the U.S. with vaccine rollouts, you’re seeing foodservice and the economy as a whole opening up,” he said. “Those pipelines, if you will, got emptied out with the pandemic and the closure of restaurants. Now, everybody’s getting confident and filling those back up, so there’s been a big pull on pork and pork products, amongst a lot of other commodities.”

Last year’s impact on production volumes is also coming due, he said.

“Some rather drastic measures were taken on the production side,” when plant shutdowns orphaned market-ready hogs in 2020, he noted.

In Minnesota alone, producer groups reported depopulation of at least 350,000 head after supply chains clogged.

Further down the production chain, younger animals likewise found few places to go, something felt keenly by Manitoba’s weanling producers.

“Now we’re seeing a bit of a hole, given decisions that were made when things were looking quite bleak,” Alford said.

Short-term gains?

Cam Dahl, general manager of the Manitoba Pork Council, also noted the strong market.

“But that’s coming from things that aren’t necessarily permanent,” he cautioned.

In particular, he noted, Asia’s continued struggles with African Swine Fever have helped drive demand for Canadian pork.

While Canada’s market access to China still has challenges, “the impact of ASF in China is really driving up exports to Asia and that’s driving up the market,” Dahl said. “Were seeing other countries like the Philippines that are being devastated by ASF, where Canadian exports are increasing significantly.”

Like Alford, Dahl also noted the pull from suppressed supply out of the U.S.

Dahl argued that now was the time to look at “some of those long-term, sustainable pricing questions to ensure that we have structures in place that everybody in the value chain can be profitable.”

The Manitoba Pork Council, along with other western Canadian pork producer groups, has been pushing for revamped pricing options after the financial difficulties of last year. During a Manitoba Pork Council meeting April 14, the group urged producers to keep up the pressure on the issue, despite currently higher prices.

At the same time, both Dahl and Alford acknowledged, high feed prices have somewhat cut into profitability.

“That strong demand on the feed side is, of course havingNan impact on cost, but we are seeing strong markets at the moment, so that is a good thing,” Dahl said.

Margins are not as high as they would have been with last year’s feed prices, Alford said, but he added that producers are still seeing profit margins of $50 a head or more.

Shaking off 2020

Last spring, the Canadian Pork Council estimated that producers were losing at least $30 a head, while weanlings had taken perhaps the most dramatic hit. Some producers had lost all value from their weanlings, producer groups said at the time.

Prices fell through much of April 2020, rebounded close to normal through May, but then began a downward spiral that would bottom out in June and July, according to [email protected] marketing data. Most tracked weekly prices sat at least $50 per ckg below the five-year average from late June to mid-July. Prices slowly recovered, coming back up to average in September and finishing out 2020 above the curve.

“Everything’s done a 180, more or less,” Alford said.

Whether the current highs are enough to offset last year’s lows depends on the producer, Dahl said.

“There absolutely were people that left the business and, for them, the answer would be an unequivocal no,” he said. “So if there are ways that we can look to smooth out some of those cycles, it would be good for everybody in the value chain.”

Futures look bright

Futures values, even with current feed costs, suggest producers can expect those good margins to stay through the rest of the year, Alford said.

“Obviously the best ones are in the summer with the demand being highest in barbecue season, but even in the fall months, there’s a stretch here heading into 2022 that we see all cost structures of hog producers making some money here,” he said

Supply forecasts are also unlikely to move those prices down over the next months, Alford added. Current feed costs will likely curb the urge to expand herds, he said, while the cost of building materials will, likewise, likely tamp down on enthusiasm for extra barn building.

Dahl, likewise, was optimistic about the rest of the 2021 market.

“Beyond that, that’s hard to predict,” he said.

About the author

Reporter

Alexis Stockford

Alexis Stockford is a journalist and photographer with the Manitoba Co-operator. She previously reported with the Morden Times and was news editor of  campus newspaper, The Omega, at Thompson Rivers University in Kamloops, BC. She grew up on a mixed farm near Miami, Man.

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