Farmscape for June 14, 2018
H@ms Marketing Services says higher U.S. pork production combined with uncertain demand due to Chinese and Mexican tariffs on U.S. pork will put significant downward pressure on North American hog markets through the fourth quarter.
A 25 percent duty imposed by China on U.S. pork and a 10 percent duty imposed by Mexico on U.S. hams and pork shoulders that will rise to 20 percent in July has created a great deal of uncertainty as we head toward a fourth quarter that's expected to see about five percent more pork produced in the U.S. than one year ago.
Tyler Fulton, the Director of Risk Management with h@ms Marketing Services, notes Mexico and China represent two of the top four destinations for U.S. pork with Mexico being number one in volume and probably number two in value and China being number four or number five depending on the year.
Clip-Tyler Fulton-h@ms Marketing Services:
With the recent rally that we've seen over the last week or so in the hog markets I think that there's some good opportunities to be hedged at near break even levels.
I'll qualify that by saying the current forward prices are better not only than the cash prices that we saw last year from September to December but also over the average of the last three years.
Despite the fact that we're looking at more production and more uncertainty on the export front, one can hedge at higher levels than what the cash markets have averaged either last year or when you compare to something more of an average, like the three year average.
Fulton points out Canada uses U.S. pricing points as the critical dynamic feature of their hog pricing formula so when U.S. hog prices decline, that lowers the price that Canadian producers get.
He believes a fairly healthy hedge would be something as heavy as 50 percent of production from that September to December time frame but going even heavier than that on further rallies given that the uncertainty on the export side doesn't seem to be diminishing.
For Farmscape.Ca, I'm Bruce Cochrane.
*Farmscape is a presentation of Sask Pork and Manitoba Pork