Hog prices in Canada and the United States are slowly rising and that is a good thing, but what are the key factors influencing markets and what is actually happening.

“Over the last two weeks, (first half of May) or so, the cash market in the U.S. has made a dramatic recovery,” said Tyler Fulton, the Director of Risk Management with Hams Marketing Services in Winnipeg, MB. “After seeing what you would call a counter seasonal decline, over the course of March and April, we’ve now seen a surge in cash prices over the course of the last two weeks that’s pretty much recovered most of the decline that we saw over the previous two month period.”

Fulton said what’s happening is evidence of good solid demand. Typically the hog numbers in the United States tighten up over this time frame.

“We’re definitely seeing that today which is a big contributor to the run up in the cash market. None of that would likely have happened if we didn’t have what looks to be phenomenal export demand for U.S. pork.”

Fulton said the demand increase on the export side is fairly widespread. The latest U.S.D.A export sales numbers from March suggested that exports to Mexico were up close the 30 per cent, exports to Japan up two per cent, South Korea up over 20 per cent.

“Some of the major markets that we rely on, that the U.S. relies on, are really the primary driver of this recent run-up. Across all markets, U.S. exports were up about 25 per cent year over year which is exactly the kind of numbers, which is the gains that we need to see to deal with the sheer volume of pork that the U.S. is producing now and going into the future,” he said. “On the domestic side evidence suggests that things are really solid there as well. I think it’s very helpful the cattle market and the beef market have been extremely strong over the last month or so. From a retailer’s standpoint, there are not a lot of cheap alternatives or alternatives that are trending in the downward direction that would lead one to put more emphasis on selling beef over pork.”

Fulton said the current trend has hog production about three per cent over year ago levels and the thinking is there will likely be some increases over the course of the next two to three months and from a historical standpoint fairly large, those are large year over year gains.

“Going into the fourth quarter, we’re not too concerned about packer capacity just by virtue of the fact that we anticipate two new, large facilities coming on stream over the course of the next six months. That should help alleviate some of the high pressure, the high volume times of hog production that we expect in November and December,” he said. “The Canadian dollar which plays a huge role is down approximately three cents from what one would say was the six to eight months average prices of 75 cents,” said Fulton. “It makes for cash and forward prices that are 10 to 15 dollars per ckg higher than what they would be otherwise. There’s no doubt that it’s making a very positive influence on Canadian high prices.”

He said the focus on renegotiating NAFTA and the media reports when there’s a big story or, for example, when President Trump is quoted referencing NAFTA and saber rattling from a trade perspective, it definitely has an impact from Canadian hog producers standpoint, it’s concerning. “It doesn’t really show up in prices that we’re receiving as our prices are a direct function of U.S. market. When there is an issue, the U.S. market is heavily reliant on Canada and Mexico for its U.S. pork exports,” he said. “In the event that we were to see something concrete come down that would adversely affect that export potential the market would reflect that in a hurry. It would work in a significant drop with the idea that if there’s an issue exporting pork, that product will have to get cleared either in the domestic market at significantly lower prices or to some other foreign country also at discounted prices.”

Producers have been very active in forward contracting over the course of the last week or two weeks.

“They’re taking advantage of this sharp rally that we’ve seen in the lean hog futures and consequently in forward contract prices. Generally speaking, we think that there’s a lot of opportunity to price as much as half of one’s production out to the end of 2017 simply to capture the value that’s already in place there,” he said. “To put it in perspective, the forward prices are running roughly 25 per cent higher than what the cash price is for last year, in 2016. This, of course, in the context of the expectation that we are going to be dealing with four to five per cent more pork in that last half of this year. When you got a scenario where you can lock in price at 25 per cent higher value that what it was last year and you’re expecting four to five per cent more supply. It’s a pretty good scenario and I think that’s why producers are taking advantage of it right now.” •

— By Harry Siemens