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Further Cuts Needed to Drive Up Hog Prices

by 5m Editor
30 September 2009, at 11:59am

CANADA - A Des Moines, Iowa-based agricultural economist says further reductions will be needed in the North American breeding herd to push up hog prices and restore profitability, writes Bruce Cochrane.

In August pork producers in the United States lost an estimated 40 dollars per hog and because of factors such as the rising value of the Canadian dollar the hurt has been greater on the Canadian side of the border.

Paragon Economics president Dr Steve Meyer says the losses have been fueled primarily by a 20 per cent rise in input costs so producers will have to reduce output to drive up hog prices enough to cover those costs.

Dr Steve Meyer Paragon Economics

We've seen reductions on both sides of the border and there have been substantial reductions both places.

The United States has a larger herd so our reductions so far since our peak back in December of 2007 has been about 359 thousand head on the breeding herd or 5.7 per cent or so.

On Canada, of course, a much smaller herd so their reduction of 250 thousand head roughly since their peak back in 2005 has been about a 15 per cent reduction.

When we look at that the argument can certainly be made that the United States needs to cut back more.

I think the truth is that both countries are going cut back some more.

I think Canada is headed for 1.2 to 1.25 million sows and that would be another 100 to 150 thousand there.

The US is probably going to take out another 300 thousand sows to get down close to 5.5 million.

At that rate, with the productivity gains we've seen, we'll probably supplies in late 2010-2011 and beyond, we can get them back down where we can generate the kind of prices that we need to cover these higher costs.

Dr Meyer predicts, based on US futures prices, that we could see four or five profitable months next year.

He says that suggests, if these reductions are made over the winter and into the spring, that by 2011 we should see this thing turn around and be back in the black for most producers.

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