September 24, 2007

 

Narrowing FX rates to push more Canadian pigs to US

 

 

Canadian hog producers are expected to ship more feeder pigs to the US in the near-term due to a narrowing of the exchange rates of the US and Canadian dollars, which are now near parity.

 

The weakening of the US dollar has generated "continued stress for hog producers in Canada," said Glenn Grimes, agricultural economist at the University of Missouri. It has also increased the competitiveness of US hog feeders and pork packers, he said.

 

US hog prices typically set the market for all of North America. The amount that Canadian producers are paid for their hogs is determined by the quotes in the Iowa/southern Minnesota market.

 

The effect of the lower US dollar on Canadian producers is contributing to a rise in the number of feeder pigs being shipped south into the US to be fed to slaughter weights here, said Rich Nelson, analyst with Allendale Inc. in McHenry, Ill.

 

The US Department of Agriculture this week reported live swine imports from Canada for the week-ended Sept. 15 at 201,692 head, the largest figure since December 2006. Of the total, nearly 67 percent were feeder pigs. For the year, live swine imports are up 10.2 percent from a year ago and on a record-setting pace.

 

"We will see the influx of feeder pigs into the US from Canada continue at a very healthy rate," said Dan Vaught, analyst with A.G. Edwards and Sons in St. Louis.

 

The narrowing of the exchange rate normally would result in cheaper corn imports for Canadian livestock producers. However, demand from the ethanol industry has pushed US corn prices up from historic levels, offsetting the changes in the exchange rate.

Nelson said a low US dollar value helps US meat export sales, including shipments to Canada.

 

The importing nations get more product for their money than they did when the US dollar was higher in value relative to their currency. Total pork exports to Canada in July--the latest data available--were up about 2 percent from a year ago while the year-to-date figure was down 2 percent.

 

The exchange rate Friday was shown at US$1 being equal to about C$1.01. On this date two years ago, the US dollar was worth about C$1.17, and in 2002 it was C$1.57.

 

The analysts said that while the near-term effect of the parity in currency values is expected to be increased feeder pig imports from Canada, the longer-term outlook is for a slow reduction in the size of the Canadian breeding herd that could eventually lead to fewer hogs and pigs available to be shipped to the US

 

High feed costs and expectations of weak hog prices throughout the fall and winter also are seen encouraging Canadian producers to sell the pigs now to US feeders rather than hold onto the animals and feed them to slaughter weight in Canada.

 

Greg Wagner, director of marketing and risk management for Horizon Ag Strategies in Chicago, predicts high feed costs will be sustained for the foreseeable future. With the current hog and grain market conditions along with the exchange rate parity, he expects more liquidation to occur in the Canadian hog herd.

 

Vaught said the hog market currently is "not acting well despite all the talk about exports to China. There are so many hogs available right now, and supplies will remain large over the next six months."

 

The fourth quarter and 2008 do not look good from a profitability standpoint (for hog producers)," Vaught said. "There needs to be a cutback in production."