Hog profits disappear as U.S. futures crash

CNS Canada — A sharp drop in the U.S. hog futures over the past week is cutting into the profitability of the Canadian sector as well, with a turn higher unlikely in the near term.

U.S. lean hog futures set new contract lows over the past week, as large North American supplies and expectations for declining demand weighed on values.

“We’re down to the level where some of the more efficient producers will still be able to eke out a profit,” said Tyler Fulton, director of risk management with H@ms Marketing in Manitoba.

Those who actively hedged earlier in the year, or even a week ago, are probably still OK, “but there will be some who will struggle; it will be a cash flow draw for the next six months.”

December CME lean hog futures are already below US$50 per hundredweight, considerably weaker than a year ago at this time, and Fulton said the cash market risk was even lower.

Fundamentals won’t support a bounce higher, he added, as expectations are for record supplies of all meats in the fourth quarter.

Also not helping matters is the fact that packers are seeing very healthy margins, said Fulton. Those large margins, in excess of US$40 per pig, mean that they don’t need to compete as fiercely for the hogs and are more likely to run weekend shifts, which ups the total slaughter numbers.

“The saving grace is definitely feed costs,” he said, adding that corn and soybean prices are down significantly.

Pork exports should also eventually pick up in 2017, he said, noting “the relative competitiveness of North American pork on the world stage may drive the recovery.”

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.