Canadian pork producers further trimmed breeding herds during the last three months of 2009, analysts say, attempting to stem a nearly-five-year trend of mounting losses.
A USDA report due Wednesday may show the Canadian breeding herd shrank 4 percent to 5 percent during the fourth quarter of 2009, compared with the same period in 2008, University of Missouri economist Ron Plain said. Plain estimates that Canada’s total pig herd will fall 6 percent to 7 percent during the quarter. USDA’s quarterly U.S. and Canadian combined hog inventory report is expected Wednesday.
Pork producers’ losses on both sides of the border swelled in recent years as feed costs soared and a weak economy hurt meat demand. U.S. producers lost a total of $6 billion raising hogs the past two years, Plain said. “We need to stop the red ink and start turning profits, and the key to that is fewer hogs.”
Plain pegs producers' breakeven price at about $70 per hundredweight for this summer on a carcass basis. June CME Group lean hog futures, which reflect carcass prices, ended at 78.15 cents a pound today. March futures rose 0.1 cent to 68.3 cents.
Canada’s pork producers have been reducing their herd for a longer time and, more recently, at a faster pace, than their U.S. counterparts. The Canadian breeding herd has been declining since March 2005, while the U.S. herd has been shrinking since October 2007, analysts Steve Meyer and Len Steiner said in CME Group’s daily livestock report yesterday.
As of Oct. 1, Canada’s breeding herd totaled 1.353 million head, down 4.3 percent from a year earlier, according to USDA data. The U.S. breeding herd as of Dec. 1 was 5.874 million head, down 3.1 percent. The size of the breeding herd is a key indicator of pork supplies six to 18 months in the future.
Breeding herds probably will continue to decline through the first half of 2010, though the prospect of profits during the summer may slow liquidation efforts, according to Plain. U.S. producers lost about $12 per hog in January on average, compared with a loss of $25 per head in 2009. “We need to be reducing herds all the way through 2010, but I worry that may not be the case,” Plain said.
The combined U.S. and Canadian breeding herds have declined 7.1 percent from an October 2007 peak of 7.752 million head, Meyer and Steiner said in yesterday’s report. Still, that’s “not a large enough dent to push hog prices to consistently profitable levels, given a 20 percent to 30 percent increase in costs.”
Additionally, "recent weeks have seen U.S. sow slaughter levels fall sharply, at the first hint of a profitable year in 2010,” Meyer and Steiner added.
CME Group futures are indicating that the reductions to date may be sufficient to return the industry to profitability. “Only time will tell, but fundamental factors suggest that further reductions may be necessary if producers are to see some much needed profits beyond the summer of 2010,” according to Meyer and Steiner.