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Canada Livestock and Products Semi Annual Report 2008

by 5m Editor
1 April 2008, at 12:00am

By USDA Foreign Agricultural Services. Canadian production of beef and pork is forecast to be lower during 2008. Livestock inventories are in decline reflecting high feed costs and low market prices. Canadian imports of beef and pork are increasing, bought on partially by a strengthening in the Canadian dollar to levels not seen in decades. Canadian red meat exports, on the other hand are forecast to struggle to reach last year’s levels given lower slaughter output and the competitive challenges in international markets related to the Canadian dollar’s rise.

Executive Summary

  • After peaking in mid-2005, Canada’s cattle inventory began 2008 with its third consecutive annual decline. According to Statistics Canada, cattle farmers reported 13.9 million head on their farms on January 1, 2008, down by 210,000 head, or 1.5%, from January 1, 2007. The level was only slightly more than the 13.5 million head cattle inventory at the beginning of 2003 before Canada’s initial detection of BSE.
  • Lower beef production is forecast for 2008. Presently, post predicts the annual decline in total Canadian beef and veal output during 2008 to range between 6.0-7.0%.
  • During 2007, U.S. exports of fresh and frozen beef and veal to Canada reached 75,880 MT (product weight) surpassing their pre-BSE level of 67,565 MT. Strong demand for U.S. beef in Canada is related to lower Canadian fed slaughter and a stronger Canadian dollar.
  • Canadian beef exports have not recovered to their pre-BSE level. Fresh and frozen Canadian beef and veal exports have fallen annually since 2004 even as international market access began to improve after trading partners lifted, or partially lifted, BSE-related import control measures.
  • Canadian hog inventories plunged during 2007 as a strong Canadian dollar and high feed costs challenged producers. According to the January 2008 Livestock Survey by Statistics Canada, there were 14.0 million hogs on farms 897,000 fewer than on the same date in 2007. This is down 6.0% from 2006 and is 2.4% lower than October 1, 2007.
  • Given the poor profitability prospects for 2008, many industry analysts anticipate a continued reduction in the Canadian swine herd throughout 2008 and the exit from the industry of many smaller producers. In late February 2008, the Canadian government announced a C$50 million program to encourage producers to cull the national sow herd by 10%, or about 150,000 head.
  • Pork production will fall in 2008 and Canadian pork exports are likely to struggle to maintain the levels of recent years. Ironically, as the profitability fortunes of Canadian hog producers decline, increased foodservice and retail demand for certain cuts of U.S. pork and the strong Canadian dollar has resulted in record imports of U.S. pork
  • Canadian live hog exports to the United States reached 10.0 million head during 2007, a 14% increase from the previous year. Prospects for even stronger feed prices in 2008 combined with the outlook for continued weak hog market prices in Canada are expected to propel live hog exports to the United States to a new record level in 2008.

THIS REPORT DOES NOT CONTAIN OFFICIAL USDA DATA

Note: The forecasts in this report are made under the policies in effect at the time of writing. U.S. Country of Origin Labeling (COOL) is scheduled to come into effect in September 2008. However, the USDA regulations associated with COOL are not yet known. COOL regulatory provisions may impact on U.S./Canadian trade in livestock and livestock products but analysis of the potential impact cannot be made in absence of the final COOL regulations, the basis on which U.S. packers and feeders may adjust their purchases of live livestock and meat from Canada.

Hogs & Pork

Canadian hog inventories plunged during 2007 as a strong Canadian dollar and high feed costs challenged producers. According to the January 2008 Livestock Survey by Statistics Canada, there were 14.0 million hogs on farms 897,000 fewer than on the same date in 2007. This is down 6.0% from 2006 and is 2.4% lower than October 1, 2007. Given the poor profitability prospects for 2008, many industry analysts anticipate a continued reduction in the Canadian swine herd throughout 2008 and the exit from the industry of many smaller producers. In late February 2008, the Canadian government announced a C$50 program to encourage producers to cull the national sow herd by 10%, or about 150,000 head (see Policy Section).

Pork Production

Domestic slaughter has continued to decline after reaching a record high in 2004, consistent with soft domestic demand for pork, lower prices paid to producers and higher feeding costs. Hog slaughter dropped 2.4% between 2006 and 2007.

Pork production will fall in 2008 and Canadian pork exports are likely to struggle to maintain the levels of recent years. Ironically, as the profitability fortunes of Canadian hog producers decline, increased foodservice and retail demand for certain cuts of U.S. pork reflecting the strong Canadian dollar has resulted in record imports of U.S. pork (see Trade Section).

Consumption

Hog Market Prices

Canadian hog market prices have been under pressure since mid-2005 when expansion was evidenced in the U.S. hog inventory and when Canada’s pork processors were confronted with declines in the consumption of pork in Canada and lower pork exports, partially reflecting a strengthening Canadian dollar. From January 2007 to December 2007, the Canadian dollar rose more than 17% against its U.S. counterpart. In the final quarter of 2007, Canadian hog market prices plunged more than 30% below year earlier levels. Some market analysts predict that Canadian hog market prices may rebound in late 2008 while others believe that 2008 prices will be the bleakest on record.

Per Capita Consumption

According to Statistics Canada, per capita pork consumption peaked at 30.09 kg in 1999, but almost regular annual declines have been evident since that time. Per capita pork consumption in Canada fell almost 20% over the six year period 2001-2006. Some of the factors behind declining pork consumption 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.

CANADA: Per Capita Pork Consumption-carcass weight
basis

Policy

Sow Cull Program Announced With Goal For 10% Breeding Herd Reduction

As part of its expanded effort to help struggling hog producers, Agric ulture and Agri-Food Canada (AAFC) announced a Cull Breeding Swine Program designed to help restructure the industry to bring it in line with market realities. The objective is to reduce the national breeding herd size by up to 10 per cent over and above the normal annual cull rate. In a press release, AAFC said that it recognizes that increased input costs and a strong Canadian dollar have resulted in ongoing losses in the hog sector. The sow cull measure is directed at assisting producers planning to exit the industry or permanently downsize their operations. The program will be delivered through the Canadian Pork Council, the national organization representing hog producers. The Canadian Pork Council released the following preliminary details of the Cull Breeding Swine Program:

  1. A payment of $225 per sow or boar slaughtered would be available to eligible producers following program launch and approval of application. In addition, reimbursement will be made for costs of slaughter and carcass disposal.
  2. Reimbursements will be based on invoiced receipts.
  3. Producers must agree to empty at least one barn, and not to restock this barn for a period of 3 years. Partial barn reductions are not eligible for the program.
  4. A payment of $225 per sow/boar less the selling price will be available for producers that sold animals from November 1, 2007 until the date of the launch of the program, as long as they can provide receipts and agree to keep the barn empty for the three year period.
  5. Animals must be slaughtered and disposed of in compliance with environmental (regulations).
  6. It is expected that the (C$50 million) funding will result in a 10% reduction of the Canadian swine breeding inventory (approximately 150,000 animals).
  7. The animals/meat must not enter the human food chain. The animals may be rendered for use in pet food or other purposes, or disposed on-farm.

Live Hog Exports to the United States

Canadian live hog exports to the United States reached 10.0 million head during 2007, a 14% increase from the previous year. Prospects for 2008 suggest that the level may approach 11.0 million head. Canada’s export dependent pork sector has entered a period of economic uncertainty caused by a combination of the meteoric rise in the Canadian dollar and high prices for agricultural commodity inputs. High energy prices and strong economic growth in Canada have helped propel the Canadian dollar to 30 year highs. From January 2007 to December 2007, the Canadian dollar rose more than 17% against its U.S. counterpart. As a result, the pork sector’s ability to profit from increasing world demand for protein is obstructed by the high value of the currency as its competitiveness is reduced. High commodity prices have dramatically increased hog feed costs resulting in substantial losses for hog producers, losses exacerbated by ever declining market price offerings from Canadian meat packers who are struggling to compete in U.S. and world markets in the new, high value Canadian dollar environment. Prospects for even stronger feed prices in 2008 combined with the outlook for continued weak hog market prices in Canada are expected to propel live hog exports to the United States to a new record level. In the first six weeks of 2008, preliminary data show combined exports of live Canadian feeder and slaughter hogs to the U.S. 34% above the same period a year ago.

Lower Live Hog Exports Under COOL?

Country of Origin Labeling (COOL) was part of the 2002 Farm Bill and directed the Secretary of Agriculture to promulgate regulations requiring U.S. retailers to notify their customers of the country of origin of covered commodities which included the muscle cuts of beef, veal, lamb and pork (and their ground meats); farm raised fish and shellfish; wild fish and shellfish; perishable agricultural commodities and peanuts. Only the mandatory fish provisions went into effect as scheduled in April 2005. However, a revised version of COOL is expected to implement the meat provisions by September 2008. An updated version of COOL is in both the House and Senate versions of the farm bill, which passed last year but lingers in conference committee. Currently, there is uncertainty about the impact of COOL implementation on Canadian live hog exports to the United States. Will COOL provisions discourage U.S. packers and hog finishers from purchasing Canadian hogs due to identification and segregation complexities or are they likely to simply pay less to offset additional costs associated with COOL? The issue is expected to become clearer once USDA’s COOL regulations are known.

Live Hog Exports to the U.S.

Pork Imports

Total Canadian pork imports in 2007 reached 170,796 MT (CWE), 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 and Denmark.

U.S. Pork Sales to Canada Surge

U.S. pork sales to Canada increased 20% during 2007 to reach 164,334 MT (CWE). 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 2008, demand for U.S. pork in Canada is expected to increase modestly reflecting the outlook for lower Canadian pork production and forecasts of a continued strong Canadian dollar versus the U.S. dollar.

CANADA: Pork Imports (CWE) from the U.S.

Pork Exports

After more than ten years of consecutive annual increases, Canadian pork exports peaked during 2005 and fell throughout 2006 and 2007. Total pork exports (CWE) in 2007 slipped 4.4% from the year earlier level (see table).

For 2008, the outlook for lower pork production in Canada, prospects for increased live hog exports to the United States, and a strong Canadian dollar point to lower Canadian pork exports, probably in the neighborhood of 1-2.0% lower than the 2007 realized level, hovering near 1.0 MMT (CWE).

Chart: 10 Years of Canadian Pork Exports


Further Reading

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April 2008