The hog market is starting its rebound with news that previously plugged value chains are once again starting to move — but the sector has a long climb ahead.
Bill Alford, general manager of Hams Marketing, noted that U.S. processors previously shut down due to COVID-19 are once again ramping up operations, although the backlog of market-ready hogs held back by those shutdowns is far from cleared.
“It’s come back a little quicker than some anticipated, but still, it’s not ahead of where they’ve got to be to get current (with slaughter space),” he said.
Hams Marketing reported 450,000 hogs slaughtered in the U.S. June 10, down from 482,000 the same time last year.
The U.S. Department of Agriculture (USDA) recently raised the 2020 pork forecast in its June 11 World Agricultural Supply and Demand Estimates. The USDA now expects 27,766 million pounds of pork to come out of the U.S. in 2020, up from its May projections of 27,436 million pounds and actually slightly higher than production last year.
The market has a long way to go, however, before digging itself out of the price hole dug by COVID-19.
Why it matters: Pork processors are starting to get back up and running, but the sector is still fighting a backlog of market-ready hogs, weanling prices are still at a low point and hog prices in general have a long way to go before the shadow of COVID-19 is behind us.
Prices had shown some signs of recovery through May, according to Hams Marketing. On May 28, the company reported its sales for the previous day ranging from $160 to $192 per 100 kilograms, up from the low mid-April. On April 15, for example, the company reported prices between $88 and $129 per 100 kilograms.
By the first week of June, however, those weekly prices had dropped again. On June 10, the company reported prices between $124 and $157 per 100 kilograms.
Cash prices remain far below normal, although they had risen close, or even above, the five-year average through May. On May 30, Hams Marketing reported an average weekly cash price of $173.39 per 100 kilograms, compared to $194.88 on June 1 the previous year. By June 5, those cash prices had dropped to $148.51 per 100 kilograms, compared to a five-year average of $178 and last year’s price of $190.16.
Hog futures, likewise, are not offering profitable estimates for, “the rest of this year, basically,” Alford noted.
Andrew Dickson, general manager with the Manitoba Pork Council, echoed Alford.
“Because there’s this uncertainty in the market, everyone’s going on cash at the moment, at least in Manitoba anyway, rather than trying to lock in prices, because if you locked in right now, guarantee you, you’d lock in a loss,” he said. “We’re looking at November prices of, with bonuses and everything, maybe $140 (per head) if you’re doing well.”
Producer cost meanwhile, is at least $175 per market hog, Dickson estimated.
It is likely cash values will continue to fall into autumn, according to Dickson, although he also noted that the situation could change rapidly, depending on how social distancing restrictions ease in the U.S. Corn price uncertainly has added yet another wrinkle to the equation.
Ethanol production is down, softening corn prices Dickson noted.
“The cost of production might hold its own or even come down a little bit,” he said. “So we don’t know what’s going to happen.”
Alford suggests that market recovery might stretch into early to late fall, although he stressed that those predictions are rough.
“It is very much a guesstimate, but we’re seeing that the U.S. pig herd, particularly, is having to rationalize or get back into balance with the new capacity or the new normal due to these restrictions with processors not being able to do what they were able to do capacity-wise prior to this,” he said. “There’s liquidation, by all accounts, happening down south in the U.S. Slaughter of sows is running quite a bit above a year ago, which is your first indication, but again, this is going to take some time.”
Weanlings still struggling
The U.S. sector is still struggling to clear the backlogs left from processing slowdowns, a fact that continues to impact Manitoba’s weanling market as U.S. producers fail to clear barn space or replace feeder pigs.
The Manitoba Pork Council estimates that about 68,000 piglets were shipped out of province and into the U.S. during the last week of May, numbers that Dickson says are roughly normal, if at significantly lower prices.
A portion of those animals were on contract, he said, and likely brought in about $15 to $20 per head. Those prices are a marked downturn compared to before the COVID-19 pandemic, Dickson said, but the hardest hits have been felt by producers selling on cash. Dickson estimates that those animals also likely only garnered $4 to $5 per head.
Some piglets have also been shipped to Ontario and elsewhere in Canada, he noted.
According to Hams Marketing data, average isowean prices June 11 hovered at US$5.11 and feeder pigs went for US$14.65, a far cry from peaks of over US$60 per head for both types earlier this year.
“The good thing is they’re moving the pigs,” Dickson said. “Right now, a lot of producers just want to move them, get them off the farm. They don’t want to euthanize them.”
The weanling market may yet improve if U.S. hog prices, likewise, improve into the fall, he said.
The same June 11 USDA report, however, noted that 2020 hog price forecasts were still down due to “current price weakness and increased supply pressure.”
U.S. trade tensions with China have added yet another element of uncertainty, as hog prices in Canada are based around the American price.
In early June, U.S. media reported that state-owned Chinese companies had been asked to stop buying U.S. soybeans and pork, while other U.S. commodities had also landed in the trade crosshairs. Reports tied the shift to increasing tensions between the U.S. and China.
The economic impact of those cancelled shipments is, likewise, a “guesstimate,” Alford said, since packing capacity impacts also meant there was less pork available for export.
“How much did not get exported just to the sheer fact that it wasn’t available due to the restricted capacity?” he said. “We’re going to see that play out in the coming weeks and months now that they’re trying to get back to full capacity.”
Dickson, meanwhile, pointed to previously observed trends in China’s buying behaviour.
“The way the Chinese buy, it seems to be they buy these lots, so they’ll buy a whole bunch for a while and then stop,” he said. “Then they buy another bunch and they stop, or they buy a smaller bunch and then they stop. I think part of the thing is they’re watching prices and they’re being very careful not to come in with a giant order that would swamp the system and push prices up.”
Manitoba’s major pork processors say they have not experienced the problems seen elsewhere in North America.
Safety precautions against COVID-19 spread have also slowed production, plants have warned in recent months, even if they have dodged active cases on staff.
Kevin Geisheimer, media spokesperson with HyLife Foods, says the company’s main plant in Neepawa has not seen a loss of capacity, although they have asked staff to sign in earlier and stay later.
“There has been some inconvenience that way, but overall, we’re very, very grateful to our teams,” he said. “They’ve been very accommodating throughout this entire situation.
“We’ve had to add extra PPE (personal protective equipment) and it doesn’t always make their jobs easier and it takes more time before and after shifts because we’re doing health checks every morning,” he later added.
Geisheimer says those measures have not changed and the company is still looking for improvements, even as other general restrictions in the province ease.
Manitoba, in general, has not seen the numbers of COVID-19 cases reported in other parts of North America.
As of June 11, 300 cases had been found in Manitoba and only seven remained active, compared to 660 total cases in Saskatchewan, over 7,300 in Alberta and over 31,500 in Ontario.
“We don’t want to take the situation for granted, where we’re at now in Manitoba,” Geisheimer said, pointing both to company and community safety.
Maple Leaf Foods did not directly respond to questions about its Brandon pork facility, but pointed to its online company updates.
The company has reported 66 cases across its network, most linked to a poultry plant in Brampton, Ontario and Viau Foods in Montreal. A total 11 plants have had positive COVID-19 cases, the company noted.
The Brandon plant did not appear in the company’s list of plants reporting COVID-19 cases.
“Like companies around the globe, Maple Leaf Foods is experiencing the challenges of the COVID-19 pandemic in ways we could not have imagined this time last year. The situation is extremely fluid and we are taking every step we can to protect our people as we continue our essential operations to deliver the food people need,” an online statement said.
Both Dickson and Alford also argued that Manitoba market-ready hog numbers fell short of processing capacity prior to the pandemic, limiting potential impacts as safety precautions were put in place.
“It hasn’t resulted in any disruptions,” Alford said. “Initially, when this all came about in early April, end of March, they very quickly acted to put in these new measures to mitigate the risk, but they weren’t at full capacity… they’ve just been able to stretch out the clock a little bit.”