Changes to Canadian Hog Pricing Formulas Improve Producer Profitability

Changes in the way Canadian pork processors value the hogs they purchase have reduced volatility within the market and improved the profitability of producers

 by Bruce Cochrane – FarmScape Online

Canadian live hog prices have typically been based on formulas that reference U.S. prices but, right now, the total volume of hogs available in the U.S. is much closer to the maximum U.S. slaughter capacity than is the volume of hogs in Canada to Canadian capacity.

Tyler Fulton, the Director of Risk Management with HAMS Marketing Services observes we’ve seen a better than usual improvement in the pork cut-out value since the Christmas holiday period allowing the packers to rationalise higher prices and it has a more direct influence on some producer contracts.

 

“There’s been an advantage to those producers that have been able to have their formula price based in part at least off of the pork cut-out“

 

“Increasingly in Canada, in western Canada in particular, we’ve started to see more packers make reference to the pork cut-out, the carcass cut-out value.

“What that means is that it’s generally a little less volatile and when demand is good and a lot of pork is moving from packers, the pork value can reflect that and the producer would be a direct benefactor of a higher pork cut-out.

“For example the pork cut-out value currently is running the neighbourhood of around 85 dollars.

“What we’re talking about is 85 U.S. dollars for the aggregate value of all of the primal cuts off of a U.S. pig where as live hog prices, in terms of cash bids, are still well shy of that, sub-70 dollars, so there’s been an advantage to those producers that have been able to have their formula price based in part at least off of the pork cut-out.”

 

Fulton notes we were seeing a widening spread between uncommitted cash hog values and the pork cut-out and, if something wasn’t done, more hog producers would have been leaving the industry because it was far too volatile.

*Farmscape is a presentation of Wonderworks Canada Inc.