August 19, 2008

 

Canada hog prices improve but seen falling in Q4

 

  

Hog prices in Canada are currently hovering around the break-even point but are expected to fall again in the fourth quarter of 2008. In the spring of 2009, values are expected to improve again to break-even levels.

 

For the first time in more than a year, Canadian hog prices are near the break-even level, said Brad Marceniuk, livestock economist for Saskatchewan Agriculture.

 

As of August 12, the price of Saskatchewan SPI Index 100 hogs ranged from $168 to $178 per hundred kilograms, or ckg, which is equal to about 220 pounds. That was up from an average price of $159.30 per ckg the week before and $150.00 per ckg since the end of July.

 

According to Marceniuk, just one month ago it looked as if prices would not hit break-even until next summer. In the meantime, however, feed costs have come down, US hog prices have gone up and the Canadian dollar has weakened significantly.

 

"Strong demand has pushed prices higher in the near-term, but in Canada we've also seen the Canadian dollar get weaker. So in Canada we're benefiting from higher pork prices but also the Canadian dollar coming back down," he said.

 

As of August 18, the Canadian dollar was trading at 94.23 US cents, or US$1=C$1.0612. Just over one month ago, the Canadian currency was sitting above par versus its US counterpart.

 

Marceniuk said he would be surprised, however, if prices did not come back down in the fourth quarter of 2008.

 

On an annual basis, the last three months of the year typically bring the lowest prices as glut of animals come to full slaughter weight. This year, the US has indicated it expects to slaughter a record 31 million hogs in the fourth quarter.

 

"Prices will come down and we'll be losing money again. Canada probably won't see break-even prices again until either April or May of next year," Marceniuk said.

 

Based on the current lean hog futures prices and Canadian exchange rate futures, the futures market is indicating that Saskatchewan Index 100 hogs could average between $135 to $145 per ckg in the fourth quarter of 2008 and average between $145 to $155 per ckg in the first quarter of 2009.

 

Important factors to watch in the coming months will be the relative strength of the Canadian dollar and the price of feed grains, as feed accounts for roughly 50 to 60 percent of operating costs for hog producers.

 

With frost damage still a possibility in Western Canada and harvest operations just beginning, feed prices will be difficult to gauge for about another month or so, Marceniuk said.

 

The Canadian hog industry will also be waiting to see how much liquidation took place over the spring and summer, not just in Canada but in the US as well.