Tyler Fulton, the director of risk management with HAMS Marketing Services said a legislated reduction in U.S. hog processing capacity would have its most significant negative impact on hog markets this coming fall and winter. 
Fulton said that there’s not much of an issue with packer capacity and the available supply in the summer months. Current hog numbers are among the lowest weekly production numbers for the year, and that’s a reasonably typical trend, so there is some slack capacity there. But moving into the fall time frame, there are some new concerns. That has to do with the new law that could see a reduction in the U.S. hog processing capacity. 
While others suggest a two-and-a-half percent decline in processing capacity, Fulton said it would not be an issue at this time of year. 
But, at peak production in October, November, December, it could result in a pretty significant influence on the markets if the legislation slows the slaughter pace. So, it’s an unfinished story with some questions about applying that law, but it’s a concern and a threat going into the fall months. 
Many hogs are moving from Ontario into the U.S. where any constraint in processing will show up in price as extra hogs not committed on long-term contracts and discounted. 
“If we do see a distinct difference in U.S. processing capacity, it will also filter back to isowean producers in Canada.” 
However, given a recent softening of live hog values, Fulton advises a prudent approach to forward contracting into the fall and winter months. Although live hog prices remained strong, they softened recently; he recommends setting targets when forward contracting, not necessarily trying to pick off the highs but rather securing reasonable profitable prices on hogs out into the winter months if the profit is there. 
In the first part of July, cash markets dropped from some of the record highs, definitely some of the highest levels in the last five years. But a week later, a bit of a recovery still dealing with reasonable profitable prices right straight through the summer months and into the fall. 
We might come under some pressure from a profitability standpoint in December despite seasonally strong prices in forward prices. There’s just a lot of price pressure on the feed side of the equation squeezing margins, so there is some question there. 
“We’re definitely down from the highs on the winter months, but I don’t think we can rule out a recovery in forward prices, at least back to levels seen a couple of weeks ago before we saw the larger decline.” 
Fulton said coming off the highs, producers who have room to secure profitable prices into the fall should consider locking in 30 to 40 percent of their production. 
“Using targets is an excellent tool because, during a short volatile stretch, we can hit levels not fundamentally supported, which can trigger a short-term price rise and an opportunity to secure prices that would be profitable.” •
— By Harry Siemens