CNS Canada – Large slaughter numbers in the United States and the resulting increase in pork supplies should weigh on the Canadian hog sector in the short-term, but the long-term outlook remains more favourable, according to an analyst.
“It feels like we’re in a bit of a transition time,” said Tyler Fulton, director of risk management with Hams Marketing Services in Winnipeg. He noted that prices saw a sharp drop in August, before recovering in September and then holding steady through October. He described that activity as a “reversal of the normal seasonal trend,” due in part to broader market uncertainty that stems from the trade war between the U.S. and China.
The U.S. hog slaughter has been climbing recently, taking pork production in the country to record high levels. Those heavy supplies are weighing on prices, according to Fulton.
For local producers, “we’re probably right on the cusp of where some guys are profitable and some guys are not profitable,” said Fulton. He said feed costs were also cutting into profits in some cases. While soybean prices have hit their lowest levels in years; that weakness has not yet transferred to softer soymeal prices.
“There too, we may be on the cusp of a change in the trend,” said Fulton.
The fourth quarter is often a struggle to stay in the black, “but longer term, the prospects look very good,” said Fulton, pointing to the premium in the deferred futures over the current cash market.
The U.S. futures are pointing to strong hog prices for 2019, with concerns that African swine fever in China will cut into their pork production, according to Fulton. A reduction in China would swing more demand to North American pork, and underpin prices.