September 3, 2007

 

Low margins shift Canada pig market action to US

 

 

More and more Canadian hogs are being finished in the US as lower profit returns in the local market, the strong Canadian dollar, and high freight rates are among other factors that limit the profitability of keeping the animals in Canada. As a result, prices are relatively weaker for those pigs that stay in Canada compared to those finished in the US.

 

"The market within Manitoba is kind of weak," said Tyler Fulton, director of risk management with Manitoba Pork Marketing Inc., on feeder pig prices in the province. He said part of the weakness was tied to the fact that feeder pigs being sold now will likely be going to market towards the end of the year, which typically represents the lowest prices of the year.

 

Aside from the general cycles of the hog business, recent declines in slaughter hog futures prices and the strong Canadian dollar were also hurting the profitability of keeping feeder pigs in Canada, said Fulton. At the same time, exports of feeder pigs to the US "have been phenomenal," he said.

 

"Feeding hogs in Canada is just not as profitable as feeding those same animals in the US," said Fulton, which means the US buyers can pay a little more for the animals. While the majority of pigs that are born in Canada are fed out in the country, a growing percentage of those pigs are moving south as feeder pigs, he said, noting that the strong Canadian dollar was a major factor in reducing the profitability of Canadian feeders.

 

According to the latest government data, Canadian feeder hog exports to the US in 2007 as of August 18 came in at 3.98 million, up from 3.71 million at the same point the previous year.

 

Rene Stock, of the SPI Marketing Group in Saskatchewan, said high freight costs were cutting into the bottom line of those producers still finishing hogs in Canada. He thought the low Canadian slaughter prices, tied in with high freight and feed costs, were causing many small Canadian producers to quit buying feeder hogs.

 

Peter Voldeng is one Saskatchewan hog producer who is phasing out his finishing operations, to focus on producing feeders. "It's less expensive to raise pigs there," said Voldeng on why more pigs were being sent to the US for finishing. He also said Canadian packers pay considerably less per head than their US counterparts.

 

While brand new finishing barns are sitting empty in Canada, Voldeng said spaces are full in the US with more capacity not likely to open up until the spring.

 

When it comes to the general weakness currently seen in feeder pig prices, Voldeng said heat in the US Midwest over the summer slowed down the growth of the hogs in the region, causing things to back up. In addition, the increasing numbers of Canadian hogs moving to the US are putting more pressure on barn space in the US. "Tie that in with the volatility of feed prices from the ethanol situation and people aren't willing to pay as much for feeder pigs," said Voldeng.