November 3, 2006

 

US experts aim to fathom corn, soy and hog markets for 2007

 

 

The surge in hog and feed future prices for the past month has its basis on current developments.

 

Even so, a great deal of volatility and myriad factors are involved, according to a detailed analysis from Cattlenetwork.

 

Even if soymeal prices are high compared to previous prices, corn prices are even more so. As more farmers plant corn, soybean acreage would fall, and thus may lead to a rise in soybean meal prices during fall 2007. 

 

As fall 2007 meal futures are relatively cheap now, it might be an opportunity for farmers to secure prices for that particular feed, experts said.

 

Corn prices may stay high in the near term, but there may be some unexpected twists in the longer term if corn production powers up significantly at a time when cattle producers starts adapting to ethanol by-products for feed and eliminate the need for corn.

 

This may possibly leave an excess supply of corn which would take the steam out of surging corn prices. 

 

Meanwhile, current developments also explain why Canadian reports of a decline in its hog inventory pushed up US hog prices.

 

For one, Canada is the source for more and more feeder pigs and finishing pigs and a decline in its inventory meant lesser US supplies, which pushed up prices. 

 

The USDA has predicted a 4 percent increase in total US-Canadian hog production for 2007. That meant an extra 4 million pigs out of which more than half may have to come from Canada.

 

This meant Canada would have to significantly increase their pig exports to the US but even so, it is unlikely to reach that figure.

 

If the figure does occur, it would have meant that Canada's own pork export capability would be severely restricted as processing plants would be limited in their pork supplies, thus lessening the competition for US pork exports. In fact, Maple Leaf, one of the largest Canadian pork processors has signaled its intention to exit international markets.

 

Heavier hogs are unlikely due to high feed prices. Higher feed prices make lenders less likely to finance sow expansion deals, which also limits future supplies and push hog prices higher.

 

On the demand side, export demand has been the main engine of growth for the US pork industry as domestic demand has fallen. Although US exports to Japan has fallen slightly, total pork exports have increased significantly due to increased orders from other markets like Russia and South Korea.

 

On top of these developments, reduced Canadian slaughter capacity is expected to increase US pork exports to Canada and the country's former markets, further boosting prices.