The see-saw battle involving biosecurity, technology and human effort, in some case well beyond what people once considered beyond the call of duty keeps paying off for hog farmers whose premises don’t have the PED virus, at least not yet. That can change in a moment, in the twinkling of an eye, but for the Grace of God go I.
No one is pointing their fingers at anyone who may know of someone whose pigs have the dreaded disease, but as one producer put it so succinctly, this is a double edge battle.
Tyler Fulton, the director of risk management with h@ms Marketing Services in Winnipeg, MB says fears over possible slaughter hog shortages due to PED virus are driving up hog prices causing both cash and futures markets to fire up.
“If I get lucky and I can keep it out of my barn, I win on two counts – I don’t lose the production and agony of having to deal with it, and secondly I can cash in on these higher prices the PED crisis is causing in part.”
Fulton has evidence of positive tests for the disease from five months previous and futures markets are reacting to speculation of significant losses and as a consequence the cash and futures markets are really taking off.
“We’re at a bit of a turning point where we think the hog numbers are going to start really taking a decline due to earlier losses,” he says. “To date we’ve not seen a significant effect from PED, however by July we anticipate seeing something in the neighbourhood of four to possibly six, seven, we’ve heard estimates as high as nine per cent in terms of a reduction in the herd.”
Fulton says to put that into perspective, the previous all time high in U.S. futures price was about $108 per hundredweight a couple of years ago.
In early March, the June contract was trading at $118 so that’s almost 10 per cent higher than the highest ever. There’s really strong indications the PED crisis could well take that price up an additional five or 10 per cent, depending on how big the hole in marketing is.
Fulton says things look bullish now with hints of record prices right through the summer but this is far from certain so those who haven’t yet taken any forward protection should look at building a position.
And one way to do that is to consider taking advantage of the current strong hog market by locking in prices on the futures market for a portion of their production.
“It’s been a long time since we’ve seen this level of volatility,” he said. “My focus is strictly on the market impact of this disease but obviously the producers’ focus should be largely in attempting to protect their herds and operations by taking the appropriate measures.”
That said, from a financial perspective, Fulton thinks, for those producers that haven’t taken any forward protection yet, they should look at maybe building a position over the course of the next three weeks to two months or so because it’s over that time frame that there’ll be greater certainty as to what the market impact is going to be.
“The other thing that’s going to happen over the next month or so is the USDA will come out with a hog and pigs report which will provide probably the best estimate as to how big or how small this hole could be,” he says. “Where we are now things look very bullish.
Things look like we’re going to be looking at record high prices right straight through the summer time but this is far from certain yet. I think it’s important that producers consider taking some protection by locking in a portion of their production at these unprecedented prices.”
Fulton says things are fluid and the market is willing to put significant premiums on the futures values but, if at any point, the market gets a sense that this is overdone things could turn around and move lower very quickly. •
— By Harry Siemens