The implications of higher meat prices

March 03, 2010

Canadian farmers may not benefit from rising U.S. hog and cattle prices later this year as a strong Canadian dollar limits the industry's profitability, analysts said on Tuesday.
Strong pork demand should boost prices for a downsized Canadian hog herd and a smaller U.S. herd, Steve Dziver, risk management market analyst with Phoenix AgriTec, said on the sidelines of the Canadian Wheat Board's annual Grain World conference in Winnipeg.
That would be good news for the remaining Canadian farmers if not for the strong Canadian dollar, which is trading around 95 U.S. cents. Hog farming in Canada is generally unprofitable when the dollar is worth 90 U.S. cents or more, making exports less attractive.
The Canadian hog industry is encouraging downsizing as a way of correcting a long slump, but supplies could drop so low that a domestic packer may have to close within a year, Dziver said.
"If (farmers) start making money, we'll produce more hogs again, but right now we're likely to see further liquidation and you may threaten a packer," Dziver said.
John Morrell, a unit of Smithfield Foods (SFD.N), said last month it would close its hog plant in Sioux City, Iowa in April. One analyst said fewer hogs coming from Canada may be a contributing factor. [ID:nN20142234]
The Canadian hog and cattle industries are under pressure from volatile currency and U.S. country of origin meat labeling, which has greatly reduced Canada's livestock exports to the United States.
Lower cattle and beef supplies along with stabilizing demand should also push up U.S. cattle prices, said Jim Robb, director of the Livestock Marketing Information Center (LMIC) in Denver, Colorado.
Fed cattle prices should rise 5.5 percent on average from last year, while calf prices this fall are expected to be US$10 per cwt higher than 2009, he said. Whether Canadian farmers realize those gains depends on the value of the Canadian dollar, he said.
Chicago live cattle futures LCc1 have jumped 16 percent since Dec. 10.
Better prices may slow herd downsizing, but that trend won't change quickly, Robb said.
"Farmers are still responding in the U.S. and Canada to the (low) prices they received last fall for their calves. We have to get that money in our pocketbook, which is going to start feeling better with the calves that are sold in 2010."
The key factor in cattle prices will be whether consumers eat out more often as economies improve, Robb said, adding that the beef sector is more dependent on restaurant sales than the chicken and pork industries.
  
Source: reuters


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