If you are a subscriber to the Allendale Advisory Report, last Friday we detailed the supply end of the hog market. If you would like to subscribe, check another section of this eSnapshot. We have computed our expectations for consumer as well as export demand. Now we will bring you our price forecast on into 2008. With Monday's sharply lower CME action, many contracts are now near the price targets noted in the accompanying table. Most summer months are now only around $2 overvalued, while the December contract still carries an unreasonable premium. The February 2009 contract appears to be $3 overvalued. We would look for one more lower trade day in the next day or two and then some stability could possibly set in.
Part of the problem in this whole heavy supply mess has been the well-publicized increase in Canadian hog imports. Canadian producers have been in a liquidation phase for three years now. 2007 heightened that pace mainly due to the rising feed cost problem. While the rising feed costs have been extreme for US operations, they have actually been even worse for non-US producers. The falling US dollar makes products exporting to the US more expensive. That would normally be a sign for Canadians to keep their hogs at home. However, the Canadian packer sector has generally been reducing capacity in recent years. The net result has been a dramatic jump in the number of both slaughter ready hogs as well as weaned/feeder pigs pouring into the US. Though Canadian producers are producing fewer pigs, they are sending a larger portion of those numbers to the US. At some point those numbers will begin to moderate this year, as their drop in production finally reaches into their export business. That said, live hog imports should remain higher than last year on into the summer. Allendale estimates numbers will drop by around August or September, which is factored into our supply projections we released last Friday. These numbers are already included in the supply estimates in this table.
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