Lower Loonie and Cheap(ish) Feed Saving Canadian Hog Producers’ Bacon

photo courtesy of ebeyfarm.blogspot.com

North American hog prices have tumbled dramatically from the record highs seen last summer, pushed by a reduced impact from disease, a growing breeding herd and lagging U.S. pork exports.

“It’s amazing how quickly things can change, but it does accent how high we were last year as well,” says Tyler Fulton, director of risk management with Manitoba-based Hams Marketing Services, in this audio interview.

It’s amazing how quickly things can change, but it does accent how high we were last year as well.

Even with a small rally over the last two weeks, hog futures are trading at less than 50 percent of their value a year ago. Fulton attributes the decline to three primary factors: lower export sales due to the strong U.S. dollar; growth in the North American breeding herd of over 2 percent, according to the USDA’s Hogs and Pigs Report released March 27th; and fewer pigs dying from porcine epidemic diarrhea virus (PEDv.)

Nearby lean hog futures over the last 12 months (barchart.com)

Nearby lean hog futures over the last 12 months (Click to enlarge; barchart.com)

“It’s remarkable how quickly the industry in the States has been able to manage the disease,” he notes.

The coinciding drop in the value of the Canadian dollar has softened the impact of the price slide on Canadian producers. Feed prices have risen, but they’re still lower than they were a few years ago. He says this also helping hog operations remain in the black, even though margins are much smaller than expected:

“I think we have a little bit of free board yet. It obviously depends on the individual operation, but for this time of year there is no doubt we are running tighter than anybody had anticipated.”

Fulton shares his perspective on the surprising decline in hog values, and whether the recent rally in futures is a sign the hog market is turning around:

 

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