After several years of decline, the cattle and hog herd number appear to have reached their lowest point and a modest expansion is forecast for 2012. Due to relatively good supplies of barley, wheat and canola, Canada continues to maintain a feed cost advantage, resulting in lower exports of livestock to the United States. Given high costs, and despite solid market prices, it is too early for an expansion. Beef production is forecast to increase in 2012, while pork production remains flat, both below recent levels. A persistently strong Canadian dollar will result in weak beef and flat pork exports.

Executive Summary

The hog sector is at a turning point in 2011. Herd liquidation has ceased and farmers are looking to consolidate their operations. Post forecasts a modest increase in inventories for 2012, coupled with the retention of additional breeding sows for production. The high cost of feed, oscillating market prices and the capacity to service debt will continue to influence farmers' decisions in 2012. In the province of Manitoba, strict environmental regulations are reported to become more burdensome and may start affecting production levels in the years to come.

Exports of live hogs have also stabilised, and Post predicts a volume in 2012 similar to the 2011 level, which is only marginally higher than the previous year. Slaughter remains flat, forecasted only slightly up for 2012, after a small decline in 2011. In tandem, given fairly similar weights, pork production will show a modest increase in 2012, after some reduction in 2011.

Despite the strong Canadian dollar, pork demand remains relatively weak, prompting Post to forecast a lower level of imports for 2012. Imports in 2011 are estimated up 6.5 per cent compared to 2010, which is less than anticipated. The same strong dollar, combined with limited supplies has an impact on pork exports, forecasted to remain flat in 2012 for the third consecutive year. In 2011, gains in some export Asian markets, including Korea and Russia, have been counterbalanced by reduced volumes in some other Asian markets, United States and Australia.

HOGS

Herd Liquidation Ceased; Consolidation is Underway

The hog sector was at a turning point in 2011. Herd liquidation has ceased and farmers are now looking to consolidate their operations. Post forecasts for 2012 a modest 0.25 per cent increase in total inventories, up to 11.93 million head. In addition, it is estimated that additional breeding sows will be retained for production, up to a total of 1.3 million head.

With the increased number of sows expected in production, Post forecasts the 2012 pig crop at 28.45 million head, up 0.7 per cent from the 2011 level. The high cost of feed, oscillating market prices and the capacity to service debt will continue to influence farmers' decisions in 2012. In Canada, canola meals are a substitute, to a certain degree, for soy meals in hog rations, and the record high canola crop that is estimated for 2012 is likely to provide some feed cost relief to producers.

In the province of Manitoba, strict environmental regulations are reported to become more burdensome and may start affecting production levels in the years to come, as farmers will have difficulties in building new barns, to replace the existing facilities or to expand production, while paying the price of compliance with the new regulations.

In parallel with feed costs, hog prices remain relatively high, just enough to keep most farmers in business, but not nearly high enough to trigger a new expansion.

Trade in Live Hogs Steady

Exports of live hogs seem to have stabilised. Post predicts a number of 5.83 million head to be exported in 2012, a level that is only marginally lower that the estimated 5.84 million head for 2011. This, in turn, is also only marginally higher than the export level of 5.76 million head recorded in 2010. The market seems to have reached a balance between exports and the necessary supply of hogs required to be slaughtered domestically, given that recent years have shown a stable demand for pork both internally and on foreign markets.

PORK

Demand for Canadian Pork Remains Flat, Domestically and on Foreign Markets

As a result of stagnant demand, slaughter remains flat as well. Post forecasts hog slaughter 0.8 per cent up for 2012 to 21.185 million head, after an estimated decline of 1.3 per cent in 2011. In tandem, given fairly similar weights, pork production will show a modest increase of 0.7 per cent in 2012 to 1.765 million metric tons (MMT) after a 1.1 per cent reduction in 2011.

Per-capita consumption of pork in Canada is expected to continue its declining trend. For 2012, Post forecasts a consumption level of 21kg carcass weight equivalent, the lowest ever recorded. This reflects the fact that overall consumption is not keeping pace with the rate of population growth, as well as the fact that pork has not managed to climb in popularity among proteins, despite sustained promotion by the industry.

Trade Flows Flat

The Canadian dollar remains at record high levels, a factor that could have encouraged imports. However, countering that impact, pork demand stays relatively weak resulting in stable levels of imports. This prompted Post to forecast a somewhat lower level of imports for 2012, down to 190,000MT. The same strong dollar, combined with limited supplies, has impacted pork exports, putting downward pressure on volumes sent abroad. Post forecasts exports to remain flat in 2012, at 1.165MMT, for the third consecutive year.

Imports in 2011 are estimated up 6.5 per cent compared to 2010, which is less than anticipated. The major supplier of pork remains the United States, with a market share of more than 95 per cent.

In 2011, reduced export volumes in some Asian markets (like Hong Kong and Philippines), the United States and Australia, have been counterbalanced by gains in some other Asian markets (including Korea, China and Taiwan) and Russia. Interesting to note that due to such development, the anticipated gains in the South Korean market, which was devastated earlier in the year by an outbreak of FDM (foot and mouth disease), and which materialised in almost doubling the export volumes, in the end were not able to pull up the overall export volumes of pork.

POLICY

HyLife Foods and Aliments Prince Receive Boost from Government

HyLife Foods, formerly Springhill Farms, receives C$10 million under the Slaughter Improvement Program for upgrades to the wet area, expansion of the cooler and cutting areas, the purchase of new equipment and improvements to the work flow to enable further processing. The funding comes from the C$60 million Slaughter Improvement Program, which makes federal repayable contributions available to support sound business plans aimed at reducing costs, increasing revenues and improving the operations of meat packing and processing operations.

In a similar development, Aliments Prince owned by Olymel, received an investment of C$2 million. This investment helped the company improve its processing lines. Olymel is a Canadian leader in the primary processing and distribution of pork and poultry meat products. With the fund received, the company purchased and installed three new bacon slicing and packing lines, which increased production speed.

Further Reading

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December 2011