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Don’t expect hog heaven in 2015

Analyst Kevin Grier says markets overreacted to PEDv last year, 
but the current drop in prices is likely overdone, too


pigs eating at a feeder
Reading Time: 2 minutes

It’s been a year since porcine epidemic diarrhea virus (PEDv) was found in Canada, and the wave of high prices caused by the disease seems to be coming to an end.

“Traders seem to think this disease has been licked and is behind us because the pricing now on hogs in futures markets are such that there’s no way people seem to be worried about shortages,” market analyst Kevin Grier said during Alberta Pork’s recent telephone town hall.

Summer futures are around US$84 and fourth quarter around US$69, he said during the late-January conference call.

“Prices like that indicate to me that if there is any fear, there is much more supply than the hogs and pigs report would have indicated.”

But traders who think PEDv is no longer a threat may be jumping the gun, said Grier, noting there were nine new cases in Canada in January (on top of nearly 80 in 2014).

The price drop in the futures is overdone, too, he said.

“These futures are pretty bearish and I would like to see about $5 more on average than what the futures are offering, because I just cannot justify from my own perspective and statistical relationship, how low things are right now.”

He predicted slaughter, which fell sharply last year, should increase by five to eight per cent this year. But the production impact in 2014 was much lower, about two per cent, because American producers increased the size of their market hogs. Still, that was enough to push prices up by 15 to 20 per cent and create “a phenomenal year” for Canadian producers not affected by PEDv.

“In many times of the year, there was an overreaction on price because of the extreme uncertainty on supplies in the United States,” said Grier.

North Americans spent more on pork last year, and that’s a positive sign.

“From a demand perspective, it’s too early to say that pork has turned the corner, but it’s definitely encouraging,” he said.

The rise of the U.S. dollar will make it harder for Americans to export, but domestic demand is good. China’s demand should also be strong in 2015, he said.

“Given the dollar and global events, there’s a lot of uncertainty in the exports market and that could probably be the thing that makes or breaks us in 2015. If we have more pigs than we think we do, that could be the kicker.”

About the author

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Alexis Kienlen

Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, Alexis is also the author of two collections of poetry, a biography, and a novel called "Mad Cow."

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