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Forward Pricing Could Mitigate Hog Price Falls

30 April 2015
Manitoba Pork Council

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US- A risk management director has suggested that pork producers could mitigate some of the downward price pressure on live hogs by forward pricing, writes Bruce Cochrane.

The normal seasonal spring rally in live hog prices has got off to a disappointingly slow start this year as live hog prices have trended only slightly higher, due to downward pressure resulting from slaughter animals from the sows added to the US breeding herd a year ago hitting the market now, combined with reduced losses from Porcine Epidemic Diarrhoea.

Tyler Fulton, the director of risk management with H@ms Marketing Services, recommends forward pricing to ease some of that pressure.

Tyler Fulton-H@ms Marketing Services:

Right now forward prices are offering a fairly significant premium over the current cash market and what I'm talking about is forward prices that are being offered largely for the summer and all the way out till October for example.

These typically run at approximately a $15 to 20 premium to the cash market today and we've consistently been seeing forward prices in excess of $25 to 30 premium and all of this in the context of the prospect of heavier supplies than what many had anticipated.

I think producers can look to lock in some of their prices to mitigate some of the pressures on the market and I think there's generally pretty good value in there, especially when the Canadian dollar is running low from an historical standpoint at around that 80 cent mark.

Mr Fulton noted the high US dollar is making the Americans less competitive on the world market resulting in more pork backing up in the US domestic market.

He said that we've seen some slight improvement in recent weeks with the start of grilling season but typically, we would already have seen some bigger moves.

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