November 7, 2005

 

Canadian hog prices expected to experience seasonal drop

 

 

Hog producers in Canada can expect to see a seasonal decline in values during the remaining months of Q4, and at least in the first couple of months of 2006, according to industry sources.

 

"Unless the demand for pork increases or the supply of pork decreases, hogs will have no choice but to trend downwards," said Brad Marceniuk, a livestock economist with Saskatchewan Agriculture.

 

Based on current lean hog futures prices, Marceniuk forecast that Saskatchewan 100 Index hogs would average C$120 to C$130 for each hundred kilogram for the remainder of 2005 Q4, and average C$125 to C$135 for each hundred kilogram for the first quarter of 2006.

 

Tyler Fultonne, director of risk management for Manitoba Pork Marketing Coop, said the price forecast for hogs in Manitoba was very similar, with values likely to decline during the remainder of the fourth quarter and into the first quarter of 2006.

 

"I think the Christmas time frame will see hog values in Manitoba come under some seasonal downward pressure," he said. "Prices in Manitoba during the fourth quarter will be below what most producers consider break even."

 

Fultonne said hog values in Manitoba would bottom out at roughly C$110 for each hundred kilogram.

 

Marceniuk agreed that the expected decline in hog values would also lower returns for most Saskatchewan producers below the cost of production.

 

Also working against hog prices will be the continued strength of the Canadian dollar. Increased energy prices were also expected to increase the cost of production for hog producers, particularly in the areas of transportation and heating, Marceniuk said.

 

Fultonne said large slaughter levels in the US along with the steady rise of the Canadian dollar have had the largest bearish effect on Canadian hog values.

 

Adding to the price declines in Canada will be the fact that hog prices in the US (Iowa/Minnesota) have also been steadily declining, with average prices in the US$57 to US$60 per cwt price range. Higher than expected US slaughter numbers over the last three weeks (over 2.1 million head a week) have put some downward pressure on values, Marceniuk said.

 

US commercial hog slaughter in 2005 was seen hitting 103.39 million head, down slightly from 103.46 million head in 2004. Q4 numbers, however, are projected to increase to 27.23 million head, up from 27.19 million head in the fourth quarter of 2004 and up from their June projection.

 

"Typically, Q4 hog values are probably the lowest of the year, as hog production has a tendency to peak during this quarter," Marceniuk said.

 

He added that in terms of heating, there was little a producer could do to offset this cost on a short-term basis.

 

"If producers are already set up with natural gas or electrical heat systems, it is very hard to change those outlets," Marceniuk said. However, he added that if there does not appear to be any kind of let-up in the energy costs, then producers will start considering options that may reduce these costs.

 

Between the rising Canadian dollar, the extra heating costs and the rising transportation costs, Marceniuk felt that hog producers in Canada would probably see a C$2 to C$6 for each pig extra cost during the fourth quarter.

 

The cost of raising a hog by producers varies dramatically from farm to farm as well as from province to province, Marceniuk said, but based on a small survey he conducted break-even values were seen ranging from anywhere C$108 to C$135 for each hundred kilogram.

 

Marceniuk said while there has not been any huge increase in demand for Canadian pork, there were a couple of events worth keeping an eye on.

 

The FMD outbreak in the hog herds in Brazil may still result in some extra business for Canada down the road, he said, although nothing significant has yet occurred.

 

The avian bird influenza also has the potential of causing more consumers to consider pork over poultry, Marceniuk said.

 

"All we would need to see is a small shift in consumer demand from poultry to pork of about 3 percent," he said, noting that the demand increase would be significant.