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Canada: Livestock and Products: Livestock Report 2008

by 5m Editor
15 September 2008, at 12:00am

USDA Foreign Agricultural Service Report by George Myles. A link to the full report is provided. Hog inventories showed a significant decline of 11.6 per cent at mid-2008 compared to a year earlier. A cost-price squeeze is adversely impacted profitability, and one in five pig producers has exited the business. Canadian pork exports remain steady.

Report Highlights

Reflecting the ongoing cost-price squeeze and weak returns, Canadian red meat production is forecast to fall by an estimated 1.5% in 2008 and an additional drop of 3.0% is forecast by the end of 2009. Cattle and hog inventories showed significant declines of 4.3% and 11.6% respectively at mid-2008 compared to a year earlier. A cost-price squeeze has adversely impacted the profitability of livestock production and about one in twelve cattle producers and one in five pig producers have exited the business. These developments point not only to lower red meat production through 2009 but also to lower exports of live cattle and hogs to the United States. Total Canadian pork exports remain steady but Canadian beef exports are struggling to recover to a pre-BSE level. Ironically, red meat imports from the United States are increasing at a record pace reflecting a strong Canadian dollar and high demand among the Canadian retail and foodservice industries for U.S. red meats.

Executive Summary

The hog industry continues its transition. The cost-price squeeze in the Canadian hog industry that has worsened over the past two years has resulted in a near record hog inventory drop and a dramatic loss in the number of hog farms in Canada. According to Statistics Canada, total Canadian hog numbers in 2008 showed the sharpest inventory decline in three decades while almost one in five hog farmers exited the industry in the past year alone. The policy response by the Government of Canada (GOC) to the distressed hog industry includes provision of cash advances to cushion cash flow issues of the producers as well as a sow cull incentive program. By mid-July 2008, the sow herd had been culled by 7% thus approaching the ultimate goal of a 10% reduction.

Ironically, as financial hardship impacts Canadian cattle and hog producers, the stronger Canadian dollar has attracted increased imports of U.S. red meats by Canada’s retail and foodservice sectors.

USDA's interim final rule for Mandatory Country of Origin Labeling (COOL) is scheduled to come into effect on September 30, 2008. The initial reaction of Canada’s cattle and hog industries is that the flexibility of the COOL label categories will make the measure less onerous than initially perceived. Martin Rice, Executive Director of the Canadian Pork Council recently said, "As a result of the changes the made to the U.S. farm bill this year the record keeping requirements are much less onerous than what would have been the case under the 2002 farm bill.” In addition, recent reports that a coalition of U.S. livestock industry organizations has developed a unified approach to COOL compliance has encouraged Canada’s livestock industries. North American meat industry news services recently reported that 30 U.S. meat industry groups met and agreed on universal language (on COOL documents required) to facilitate how livestock origin documentation will move along the ownership chain in order to ensure that the meat covered by COOL is accurately labeled at the retail level.

The GOC official comments on COOL indicate several concerns including the possibility that the new rules may disadvantage imported product. The GOC indicated they perceive a lack of clarity in the display/segregation requirements at the retail level. The GOC will monitor closely and consider all options if COOL adversely impacts Canada.

Hogs and Pork

Summary

The cost-price squeeze in the Canadian hog industry that has worsened over the past two years has resulted in a record hog inventory drop and a dramatic loss in the number of hog farms in Canada. Weak market prices and high feed costs have resulted in low profit margins which are driving producers out of hog production. According to Statistics Canada, the Canadian hog industry continued its transition during the first half of 2008 and farmers reported 13.0 million hogs on their farms as of July 1, 2008, down 11.6% from one year ago. At the same time, the agency reported that nearly 20% of hog farmers had left the industry in the past year alone, or about 2,000 producers. Fewer hogs on Canadian farms will result in lower exports of live hogs to the United States. Post estimates that Canadian live hog exports to the United States will fall more than 10% during 2008 and reach about 9.0 million head, almost 1.0 million head below last year’s level. The continuing decline is the Canadian swine inventory into 2009 is expected to reduce total live hog exports to the United States by about an additional 1.0 million head to approximately 8.0 million head next year.

Hog Inventory Decline; Exodus of Producers

In the late 1990’s, Canada’s hog industry began a long run of inventory increases reflecting strong overseas demand for Canadian pork, aided by a low valued Canadian dollar, and strong U.S. demand for live swine and pork from Canada. The developments drove Canadian hog producers into an extended expansion phase that lasted ten years. However, by early 2006, an unprecedented rise in the Canadian dollar, linked to Canada’s strong position in commodity and resource markets (i.e., energy) hampered the competitiveness of Canadian pork exports in world markets. As a result, hog market prices were under pressure as pork packers reacted to the realities of the higher Canadian dollar. In addition, increasing U.S. hog inventories dampened U.S. demand for Canadian pork. By 2007, rising feed costs, related to the increased demand for corn for biofuels in North America and the increasing international demand for feed grains exacerbated declining market prices for slaughter hogs. Canadian hog industry leaders claimed it was the worst financial crisis the industry had witnessed.

According to Statistics Canada, Canadian hog farmers reported 13.0 million hogs on their farms as of July 1, 2008, down 11.6% from one year ago. At the same time, the agency reported that nearly 20% of hog farmers had left the industry in the past year alone.

Supply and Distribution: Hogs and Pork

HOGS; Canada, Supply & Distribution
Units: '000 head
NOT OFFICIAL USDA DATA
2007 2008 2009
forecast
projection
Total Beginning Stocks 14,907 13,810 12,500
Sow Beginning Stocks (ref.) 1,546 1,495 1,400
Production (Pig Crop) 31,832 30,000 29,000
Other Imports 2 1 1
Total Imports 2 1 1
Total Supply 46,741 43,811 41,501
Other Exports 10,032 9,000 8,000
Total Exports 10,032 9,000 8,000
Total Slaughter 21,266 20,700 19,800
Loss 1,633 1,611 1,601
Ending Inventories 13,810 12,500 12,100
Total Distribution 46,741 43,811 41,501


PORK; Canada, Supply & Distribution
Units: '000 MT
NOT OFFICIAL USDA DATA
2007 2008 2009
forecast
projection
Slaughter ('000 hd) 21,266 20,700 19,800
Beginning Stocks 48 57 60
Production 1,894 1,845 1,770
Other Imports 171 215 230
Total Imports 171 215 230
Total Supply 2,113 2,117 2,060
Other Exports 1,033 1,075 1,080
Total Exports 1,033 1,075 1,080
Dom. Consumption 1,023 982 940
Total Dom Consump 1,023 982 940
Ending Stocks 57 60 40
Total Distribution 2,113 2,117 2,060

Consumption

Per Capita Consumption

According to Statistics Canada, per capita pork consumption climbed to 24.68 kg, up more than 5% from the year earlier level but well below the record level of 30.09 kg during 1999. Among meats consumed in Canada, pork is the only meat to have registered a significant decline in per capita consumption during the past ten years. Some of the factors behind declining pork consumption during that period include 1) Strong retail prices during a period when BSE-related issues boosted Canadian beef supplies, 2) Consumer perception that the preparation of pork based meals at home is lengthy compared to other meats and; 3) pork’s inability to capitalize on foodservice market gains shared by other meats and fish. For 2008, reduced domestic supplies of pork are forecast and per capita pork consumption may decline following an outbreak of listeria monocytogenes on a national level in August 2008 that is expected to, at least temporarily, adversely impact the retail and institutional market for all deli-meats, many of which are manufactured from pork.

Canadian Per Capita Pork Consumption
Units: kilograms (carcass weight basis)
1999 2000 2001 2002 2003 2004 2005 2006 2007
30.09 28.69 28.94 27.83 25.07 26.6 22.98 23.33 24.68
Source: Statistics Canada

Hog Market Prices

The table below illustrates the extent of the hog market price collapse during the last half of 2007 that led to severe financial losses and the decision by one out of every five Canadian hog farmers to exit the industry. The market price decline coincided with rapidly rising input costs for feed and energy during the same period. Prospects for higher U.S. pork supplies in the last half of 2008 are expected to exert further downward pressure on Canadian hog prices as the year progresses.

Manitoba Slaughter Hog Prices
monthly averages
$C/cwt/index 100 dressed hogs
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2004 56.25 65.77 71.21 72.12 84.82 87.09 85.28 83.91 77.11 76.66 71.67 74.84 75.75
2005 72.89 71.96 69.84 70.94 78.23 70.45 68.99 69.98 66.88 63.98 59.21 58.29 68.47
2006 54.83 55.62 57.38 54.64 63.24 69.03 66.78 68.00 64.58 61.58 59.40 59.04 61.18
2007 58.55 64.83 61.52 62.67 68.64 65.63 62.75 63.92 56.10 48.35 41.00 44.27 58.18
2008 41.70 48.02 45.56 51.40 65.36 62.51

Trade

Pork Imports

Total Canadian pork imports in 2007 reached 170,962 MT (CWE), almost 18% above the year earlier level of 145,264 MT. More than 96% of Canadian pork imports are from the United States. Minor suppliers include Chile, Italy and Denmark.

U.S. Pork Sales to Canada Surge

Continuing their recent trend, U.S. pork sales to Canada soared 27% during the first six months of 2008 to reach 88,575 MT (CWE) double their rate of five years earlier. Canadian pork imports have increased in recent years reflecting the appreciation of the Canadian dollar and demand for U.S. fresh or chilled pork cuts, including back ribs and for U.S. prepared pork including pre-packaged sausages. More than 80% of pork imported from the United States is destined for Ontario and British Columbia. For 2009, demand for U.S. pork in Canada is expected to increase moderately reflecting the outlook for lower Canadian pork production and prospects for a relatively strong Canadian dollar.

Canada: Pork Imports
MT - carcass weight basis
Jan.- June
2005 2006 2007 2007 2008 % change
revised 08/07
World 139,443 145,264 170,962 71,463 89,977 26%
United States 129,816 137,302 164,461 69,848 88,575 27%
Chile 1,027 2,991 2,197 1,122 742 -34%
Netherlands 140 65 1,705 0 - -100%
Denmark 6,814 3,493 1,272 - 24 -
Italy 560 670 627 314 492 57%
All Others 1,087 743 700 179 145 -19%
Source: derived from World Trade Atlas

Pork Exports

Canadian pork exports during the first half of 2008 rose 4% above the corresponding period one year earlier on the strength of increased exports to Hong Kong, the Philippines, Russia, Taiwan and other smaller markets. Canadian pork exports to the United States fell 21% in the January-June period of 2008 reflecting plentiful U.S. supplies and the relatively high vale of the Canadian dollar. For 2009, continued weak U.S. demand for imported pork will pressure Canadian pork exporters to increase their offshore sales in order to maintain total exports at the 2008 level.

USDA's interim final rule for Mandatory Country of Origin Labeling, is scheduled to come into effect on September 30, 2008. Similar to Canada’s beef industry, the Canadian pork industry’s initial reaction is that the flexibility of the COOL label categories may make the measure less onerous than initially perceived. Martin Rice, Executive Director of the Canadian Pork Council recently said, "As a result of changes the made to the U.S. farm bill this year the record keeping requirements are much less onerous than what would have been the case under the 2002 farm bill. And there certainly is much more accommodation of existing market chains or value chains." In addition, recent reports that a coalition of U.S. livestock industry organizations has developed a unified approach to COOL compliance has encouraged Canada’s livestock industries. The media recently reported that U.S. meat industry groups met and agreed on universal language (on the documents required) to move livestock origin claims along the ownership chain in order to ensure that the meat covered by COOL is accurately labeled at the retail level.

Canada: Pork Exports
MT - carcass weight basis
Jan.- June
2005 2006 2007 2007 2008 % change
08/07
The World 1,083,652 1,080,642 1,032,637 521,348 541,232 4%
United States 477,899 448,523 432,825 224,592 177,012 -21%
Japan 304,063 244,992 250,968 134,211 128,776 -4%
Russia 25,499 83,113 86,178 32,183 40,541 26%
South Korea 57,680 74,475 66,724 34,043 33,967 0%
Australia 44,304 48,365 52,434 26,839 22,070 -18%
Mexico 45,565 37,760 37,226 18,880 14,511 -23%
China 18,045 20,631 22,849 10,137 15,053 49%
New Zealand 8,688 10,873 11,286 6,051 4,165 -31%
Philippines 10,105 7,769 11,284 4,295 19,056 344%
South Africa 4,096 9,460 10,732 6,417 3,697 -42%
Hong Kong 4,015 4,755 8,799 3,306 39,435 1093%
Taiwan 12,262 6,578 6,307 2,732 8,825 223%
All Others 71,431 83,350 35,026 17,661 34,125 93%
Source: derived from World Trade Atlas

Policy

GOC Response to Hog Industry Financial Crisis

In March 2008, the government of Canada responded to calls from the livestock industry for financial assistance by amending the Agricultural Marketing Products Act (AMPA) to give Canadian producers better access to cash advances. Changes to the Advance Payments Program (APP) through the amendments to AMPA now provide Canadian producers access up to C$400,000 (up to C$100,000 interest-free) in repayable advances. Cash advances under the APP are designed help producers with cash flow by giving them the flexibility to keep their products and sell them when market conditions are more favorable. According to Agriculture and Agri-Food Canada (AAFC), producers will potentially have access to C$3.3 billion in repayable advances if all livestock producers take full advantage of the program. AAFC also announced a new C$50 million initiative with the Canadian Pork Council to deliver a sow cull program designed to will help restructure the industry to bring it more in line with market realities including a goal to reduce the sow herd by 10 percent (see CA8008). According to the Canadian Pork Council, approximately 7% of the swine breeding herd had been culled under the program as of mid-July 2008.

Further Reading

- You can view the full report by clicking here.

Other Reports in this Series

To view our complete list of 2008 Livestock and Products Annual Reports covering pigs from USDA FAS GAIN, please click here

September 2008