Pork producers advised to look at forward contracting fourth quarter hog production

Risk manager advises pork producers to look to the future as pressure from the cash market rises.

22 February 2019, at 10:49am

In an interview with Farmscape.Ca, the Director of Risk Management with HAMS Marketing Services, Tyler Fulton, is advising pork producers to look seriously at forward contracting as much as a third of their fourth quarter production at current prices.

Since the start of the year, abundant live hog supplies combined with the impact on export demand of Chinese and Mexico tariffs on US pork have been pressuring live hog prices.

Fulton says that pressure coming from the cash market is showing up on the futures market.

Fulton explains: "There's not a great deal of potential in the forward prices for the summer months, for the spring and summer time frames.

"We've seen prices erode well over 10 percent over the course of last two to three months or so, however we've not seen the same pressure on the deferred months. By that I'm talking about the fourth quarter.

"Starting September, October, November, December, there's actually still some very good potential for locking in some decent value for fourth quarter production and we know that fourth quarter production is typically when the lowest prices are seen.

"I think that comes from the fact that the market is still leaving in a risk premium relating to the possibility of sending more pork to China.

"It's far from a sure thing and I think that given those decent values that are currently being offered out there it would be prudent I think for some producers to take some protection on as much as a third of their fourth quarter production at current values."

Fulton says that while domestic demand for remains steady, the export markets are not performing as well as we would have hoped.

He says with retaliatory Mexican tariffs on US pork still in place and with no end in sight to the US China trade dispute, the market is factoring in scepticism that we're going to have a resolution to some of these trade issues.