North American Pork Production Profitability Up

CANADA - Hog producers have been advised to seize opportunities to lock in profits on the futures market as they come up, writes Bruce Cochrane.
calendar icon 12 May 2015
clock icon 3 minute read

As the result of increased US pork production, combined with reduced losses resulting from Porcine Epidemic Diarrhoea virus (PEDv), live hog prices have fallen dramatically from the record levels of one year ago.

Dr Steve Meyer, the present of Paragon Economics, observed a number of factors over the past six weeks, including the opening of west coast ports and getting past the holidays, has triggered a steady rise in the futures market going into spring.

Dr Steve Meyer-Paragon Economics:

Profitability is not even on the same planet as a year ago because we had the big run-up in prices due to PEDv losses and the anticipated shortage of product last summer.

In fact, in the US, my model says that producers have lost money virtually all year so far and may have moved back into the black just this last week or so.

The futures market though, has some very nice profits in it for the summer now, $20 to 25 per head.

By our model it's in the black for the fourth quarter of this year, which is not always the case so profitability has improved pretty dramatically in the last few weeks based on the futures for the rest of the year.

There have been some double digit losses, $10 to 20 a head, on many of these hogs that have been sold so far this year.

It's not been a good profit winter.

We think that a large part of that is attributable to significantly higher production than what we expected and then this hiccup for exports last winter left a lot of product on the market that had to find a home, and the way you do that is normally at lower prices, and so we've kept these prices under pressure until recently.

We still think that there might be a little more upside in the futures market but it's just about getting to our target ranges for the rest of this year.

Dr Meyer advised producers to watch for opportunities to lock in profits as they come.

He suggested that if these summer contracts get up in the low to mid 80's, don't get greedy, let's price some pigs.

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