Strong hog sector facing uncertain 2015

CNS Canada — Western Canadian hog farmers are facing an uncertain future from a marketing perspective heading into 2015, with a number of factors on both the supply and demand sides of the equation that could swing prices one way or the other.

“After a very profitable 2014… we’re at pivot point,” said Tyler Fulton, director of risk management with Hams Marketing Services.

The PED (porcine epidemic diarrhea) virus, and the resulting decline in hog supplies in North America, was behind much of the strength over the past year, he said.

Reported PED cases in the U.S. have moved up slightly in recent weeks, but instances of the virus are still running well behind the levels seen at this time a year ago. “I think that’s an indication that the effect from the disease will be muted, compared to year-ago levels,” said Fulton.

Meanwhile, other factors at play on the supply side have been camouflaged by the ongoing effect of PED. Fulton said there was talk in the industry about growth in the U.S. breeding herd, with upward of 100,000 more sows coming on stream within the next year.

Together with productivity gains that haven’t been detected due to losses from PED, Fulton said there was solid evidence suggesting there will be a significant increase in the hog supply by midsummer 2015.

Decline in beef

On the demand side, the beneficial effect of extremely high beef prices has favoured pork over the past 10 months, said Fulton. However, the beef market has declined recently and if that decline in beef continues, it would weigh on the pork sector as well.

Also on the demand front, the U.S. economy is looking relatively strong and consumers will conceivably have more disposable income given the latest weakness in crude oil. Fulton said both factors would be supportive for demand for red meat.

The weaker Canadian dollar was another favourable factor for Canadian hog producers.

All of these things, independently, are big features, and could create price swings of up to 15 per cent by themselves, said Fulton. “If everything aligned, we could be looking at really volatile markets with 30 to 40 per cent price moves,” he added.

“It could go both ways — it could go higher or lower.”

This past year, he said, “the question was ‘Will we have good prices, or will we have phenomenal prices?’… Now there is the potential for us to be looking at unprofitable hog production at this time next year.”

That’s a bit of a stretch, he said, “but if things were to align the wrong way, it’s a possibility.”

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