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Pork Commentary - Canada Indicates Huge Liquidation

by 5m Editor
12 January 2010, at 8:33am

CANADA - This week's North American Pork Commentary from Jim Long.

China

We hosted some visitors from China this past week. Hog prices in China are hovering around 80 cents US live weight per pound. Price is always a reflection of supply and demand. Price point of 80 cents will pull pork exports into China. China has 1.3 billion people – they are big pork consumers on a per capita basis. Pork will be imported from the US in the coming months directly and via Hong Kong. There is too much opportunity for China importer profits for it not to happen.

H1N1

It appears to us that the effect of H1N1 (swine flu) severely hurt our prices. On 14 August, when we would normally see strong seasonal hog prices, pork cut outs were 52.31 and Iowa–Minnesota was 46.43 lean per pound. Mid-August, when the fear-mongers in the media were exaggerating the potential consequences of H1N1 (unfortunately named swine flu). Now that H1N1 has dropped for all intents and purposes off the media radar. We have Iowa–Minnesota at 65.45; almost $40 per head higher than mid-August. Seasonally counter–cyclical. The surge in hog prices can be attributed almost totally to increased demand as daily hog marketings are very similar to August. There is no doubt domestic and global demand for pork is recovering and this has lead to stronger prices. The $40.00 per head difference is $100 million difference in the US-Canada industry weekly cash flow. Our industry desperately needs the extra cash.

Canada

Canada's pig production plummeted in 2009. The raw hard facts bear out the terrible market conditions Canadian producers faced.

The numbers show 11 per cent fewer Canadian origin pigs in 2009 versus 2008 and that is 3.451 million pigs fewer year over year. In Canada, liquidation continues with tens of thousands more sows slated for the Canadian Government Transition Buyout Program. We see absolutely no reason why Canada's origin-based hog production will not be at least one million fewer in 2010 compared to 2009. Less pigs, less hogs is positive for market price appreciation.

Canada pig numbers (thousand head)
2008 2009
Canadian market hogs 20,156 20,516
Feeder pigs –
Early weans exported to the US
8,716 5,976
Export to US –
Market hogs/barrows/gilts/sows
2,206 1,135
TOTAL 31,078 27,627

Mexico

Some areas in Mexico were touching 23 pesos per kilogram last week, or about 77 US cents live weight per pound. The huge decrease in production in Mexico has pushed prices to levels unprecedented when you consider the price spread with the US market and an open border. The high Mexican price is encouraging the US hog price. Mexican pork imports from the US will set records in 2010.

Summary

Canada has had massive liquidation, Mexico the same, while the US production base has shrunk. We expect the NAFTA countries could be down eight million market hogs in 2010 compared to 2008. Couple this with the ending of H1N1 (swine flu hysteria), an improving domestic and global economy and a low US dollar. Put it all in the mix and we believe Cash Hogs will be significantly higher than current lean hog futures reflect. We continue to see scenarios that will lead to some 90 cent lean hogs in 2010.

Quote: 'The reason people in any organisation are afraid of rocking the boat is that it makes everyone uncomfortable. That is just the point of rocking the boat. Know when to rock it. Then rock it.'