Hog prices keep going up and down almost like a yo-yo or more specifically like a roller coaster gone mad.

Therefore when the live hog prices slipped over the past couple of weeks, the industry is looking at an attractive dynamic right now.

Tyler Fulton, the Director of Risk Management with Hams Marketing Services said the U.S. regionally negotiated prices in the cash markets started to trail off a little bit.

“What I think is happening is there’s just an overwhelming supply available despite two additional new packing plants coming on stream,” said Fulton. “Things are never perfectly smooth regarding ramp-ups, and we don’t have good information on how these plants are performing. I think it’s fair to say that they’ve had a very positive impact to the cash market trend over the course of the last two months since they’ve been running, but it’s not linear. It’s not a perfect relationship, and we have seen a little bit of weakness recently, possibly because of this ample supply.”

He said so typically at this time of year, over the next month or the industry ramp up hog slaughter, and as a function of that, pork production in the United States rise to their highest levels of the year.

“And this year is no different regarding that normal trend, but our starting point was roughly three to four per cent higher. And so what we expect is to see some record high pork production and hog slaughter that comes in over the next month or two, and that’s likely to put pressure on prices,” said Fulton. “The USDA pegged the U.S. hog slaughter at about a 3.9 per cent increase over last year’s numbers based on their survey of hog producers done in September, and that has pretty much come out to be pretty consistent with what the recent hog slaughter compared to a year ago.”

What the industry is seeing regarding available slaughter capacity remains to be seen. It’s still pretty early as to how it’s going to impact the market, but no doubt it is positive. Three new plants are running, compared to at this time last year, and so without them, the industry would be bumping up against hog slaughter capacity.

“So I think the biggest effects from these new plants coming on stream are likely to show up in 2018 when we start to see a tightening of hog supply into the spring and summer months and packers are forced to compete very fiercely for those limited supplies to fill their plants,” Fulton said. “I think critically important is demand. On the domestic side, all evidence suggests that things are still going very well for U.S. pork consumption and more broadly in demand. The evidence suggests that consumers are paying more for pork and they’re consuming more pork at those higher prices, so that’s unequivocally a positive thing.”

He thinks things on the export side are still struggling a little bit to match up with the year-ago numbers. If the industry isn’t clearing more product into the export markets that means that there’s more for the domestic market to chew through and that could put a little bit of pressure on prices in, over the most massive time frames, which is really over the next three months or so. Producers should be paying close attention to and planning as they move throughout the rest of the fourth quarter and into the first quarter of next year.

“I think that current forward contract values are pretty good value for the December, January, maybe even February time frames,” said Fulton. “There’s still a great deal of uncertainty with the heavy supply that we expect, and sluggish exports, and so we can’t necessarily rely on these new plants to have such a positive impact to overlook those, especially in that time frame. So I would say the current forward prices for the winter months are fair value or good value for producers that haven’t hedged in that time frame.”

Later, he thinks there’s more reason for optimism; in the April through August timeframe of 2018, there’s great potential to see some even better prices.

“We’ve seen the futures climb about four to five per cent over the course of the last week and a half, and I think that there’s solid rationale that we could see some better opportunities for hedging,” said Fulton. “I would set targets at $12.00 to $15.00 per 100 kg higher than current forward contract values in that spring/summer time frame.” •

— By Harry Siemens