U.S. livestock analysts suggest that the combination of U.S. and Canadian slaughter hog numbers in the third and fourth quarter of 2002 will make for a tight marketing situation.

But as long as those numbers don't exceed projections, slaughter capacity should be able to handle the increased numbers.

Surge in Numbers

“My numbers show that we will bring in 20-25% more Canadian feeder pigs during the March-August period (than in the same period last year) that will go into fall slaughter, and that will put us in a pretty tight situation this fall from September on,” says Steve Meyer, director of economics, National Pork Board.

Just how tight things get all depends on the timing of those pig shipments, whether they get reasonably strung out in the weeks ahead and how many Canadian slaughter hogs are added to that total, he says.

“Our assessment, as we look at the North American context, is that we are close enough to slaughter capacity to worry about it,” relates Jim Robb, market analyst at Livestock Marketing Information Center in Kansas City. “If we have any one plant close down of any significant size, we will have a problem on our hands.”

Tracking Capacity

Meyer has tracked U.S. slaughter capacity for the last eight years. Standard plant capacity is about 381,000 head/day (see Table 1). Capacity was nearly the same in the fall of 1998, when the market crisis erupted. Another group of small plants, which also existed in 1998, can kill another 12,000-14,000 head/day. In all, U.S. slaughter capacity stands at 395,000 head/day.

Bob Brown, an independent livestock and meat marketing consultant at Edmond, OK, observes that Canadian slaughter capacity in 1998 was 370,000 head/week. The peak so far this year has reached 460,000 head/week.

Taking into account both U.S. and Canadian slaughter plants, he estimates that the North American market is at least 50,000 head/week above the levels of 1998.

Estimates are that total North American commercial slaughter will be up fully 3% and possibly 4% year-to-year growth in the fourth quarter, says Robb.

That increase in slaughter is not based on growth in the U.S. sow herd, stresses Brown. The U.S. hog production industry has achieved a level of stability. USDA data shows a reported 2.9 million sows or less farrowing for the last 10 quarters in a row.

Meanwhile, says agricultural economist Dermot Hayes of Iowa State University (ISU), Canada is experiencing all of the growth in sow numbers in North America, much of which is in the eastern provinces. According to Ag Canada statistics, sow herd growth since 1998 has averaged 4-5% annually.

As of January 2002, Canada's sow herd ballooned by 7.8% and more growth is expected this year, adds ISU agricultural economist John Lawrence.

“We think the Canadian numbers may be the key as we look ahead to the balance of this year and into next year because of these very stable U.S. numbers,” says Robb.

Comments from the market analysts were part of a USDA March Hogs and Pigs report teleconference call coordinated by the National Pork Board.

Imbalanced Capacity

While the U.S. faces a slaughter capacity crunch this fall, notes Robb, that's not the case in Canada. There are reports that the Brandon, Manitoba Maple Leaf Foods plant is only operating a single shift, amidst reports of labor shortages and other issues. Other Canadian plants have faced strikes by workers.

The result is an imbalance in slaughter capabilities between the two trading giants.

“Canada has shown aggressive expansion, meaning more pigs are headed south. The next question then becomes — will the U.S. be able to send hogs north into Canadian plants if we get in a precarious position?” asks Robb.

Slaughter Hogs to Canada

Legally, regions of the U.S. can ship slaughter hogs to Canada, says Nick Giordano, assistant vice president for trade policy, National Pork Producers Council. In October 1999, the Canadian government agreed to regionalize the U.S. for pseudorabies (PRV). This permitted pork producers in Stage 4 (free status pending) and Stage 5 (PRV free) states to export live hogs to Canada for slaughter. Michigan was declared a Stage 4 state in late 1999. In April 2000, the first group of U.S. market animals was shipped from Michigan to Maple Leaf Foods in Burlington, Ontario.

But industry officials agree the process has stalled. Canadian packers say the reason is that Australian law restricts them from importing slaughter hogs from a country with PRV because Australian officials believe the PRV virus is transmissible through both hogs and meat, explains NPPC's Giordano. Canada is a major pork exporter to Australia.

Trade Barrier

The notion of the PRV virus being spread through meat is totally bogus, says Giordano. That type of trade barrier may be dismantled as Australia pursues a free-trade agreement with the U.S., he adds.

Australia's concerns also don't take into account the current status of the U.S. PRV eradication program. To date, 41 states have achieved Stage 5, says Arnold Taft, DVM, head of USDA's swine diseases programs. Eight states are in Stage 4 and Iowa is in split stage 2/3 (control/ cleanup) status.

Still, even if Australia's artificial barrier is removed, it's not likely there will be large shipments of U.S. slaughter hogs to Canada. “The thing we've always tried to do for U.S. producers is to make sure they have a level playing field, so they have the opportunity to ship hogs if the conditions warrant it,” says Giordano.

To that end, Giordano says NPPC is screening Canadian subsidy programs to find out if any are supporting the aggressive growth seen in their pork industry, and if they are legal.

U.S., Canada, Mexico Meet

National Pork Producers Council President Dave Roper pointed out at the three-country meeting in Mexico recently that U.S. pork production has grown little since 1998, while Canadian production has grown by over 20%.

Canadian officials disagreed with U.S. assumptions that subsidies are fueling that growth. But they did concede that hog imports from Canada did carry the potential of overwhelming U.S. slaughter capacity in the fourth quarter and collapsing the hog market.

Therefore, Canadian leaders agreed to work with U.S. officials to develop a plan for managing fourth quarter live hog exports to the U.S. to avoid overtaxing U.S. slaughter plants.

Table 1. U.S. Daily Pork Packing Capacity, 1996-2001
1998 Rank Company 1996 1997 1998 1999 2000 Fall 2000 revised June 2001
1 Smithfield Foods 72,300 74,300 82,300 77,100 80,300 80,300 80,300
2 IBP 72,400 79,900 72,600 65,500 69,500 71,800 71,000
3 Swift 39,400 39,400 39,400 39,400 39,400 43,000 43,000
4 Excel 37,800 37,800 37,800 38,700 38,700 38,700 32,000
5 Hormel 34,700 34,700 34,700 31,600 31,600 31,600 30,500
6 Farmland 22,800 33,800 33,800 33,800 33,800 25,800 25,500
7 Thorn Apple Valley 13,500 14,000 14,000 CLOSED CLOSED CLOSED CLOSED
8 Seaboard 8,000 8,000 15,000 15,000 16,000 16,000 16,000
9 PSF/Lundy's 13,000 13,000 15,000 15,000 15,000 13,500 13,600
10 Indiana Packers 9,000 13,000 13,000 11,000 11,000 12,000 12,000
11 Pinnacle Foods 7,200 7,200 7,200 8,000 8,000 10,200 10,200
12 Sara Lee 7,300 8,000 7,300 7,300 9,000 9,000 9,000
Total, 250/head/day and up 387,420 408,520 407,920 381,920 388,620 388,720 381,020


What Happened to U.S. Hog Prices?

Plummeting prices this spring have everyone wondering how things could get so out of sync.

Hog prices were supposed to be headed toward profitable summer highs. Instead, a series of unexpected events saw prices dip to the mid-$20s, dampening the market outlook.

Significant springtime price declines are “contra-seasonal,” something that hasn't been seen in the hog market since 1983, says Steve Meyer, director of Economics, National Pork Board. It's especially unusual in light of the fairly neutral March Hogs and Pigs report.

And he emphasizes the price drop wasn't caused solely by either a hog supply or a pork demand problem.

One cause for the price drop is the fact that total meat production in the first quarter was a near record, 2.6% larger than in 2001.

The Russian ban on U.S. poultry imports has glutted the U.S. market, dropping chicken prices and putting price pressure on pork and beef demand and prices.

Record-high dressed weights for all these species were due to the mild winter.

Easter arrived at the earliest time in 11 years, producing a long period of time until true seasonal demand strength kicks in with the start of the grilling season.

Hog prices should still rally into the low $40s (live weight basis) in early summer, says Meyer. But it's probably downhill from there as summer and fall slaughter numbers rise, pressuring packer capacity.

Those factors mean producers should carefully evaluate their ability to withstand financial risk for the next 12-18 months. If they are tight on equity, they should consider some ways to limit downside risk, stresses Meyer.

To help producers with low prices, the National Pork Producers Council (NPPC) has requested USDA immediately make additional purchases of pork for the school breakfast and lunch programs, the Emergency Food Assistance Program and other efforts.

The NPPC board of directors has established an ad hoc task force comprised of industry and government partners to explore other ways to improve the financial status of pork producers.

“We hope the current price downturn was precipitated by unrelated events,” says NPPC President Dave Roper. “However, we want to begin the process now of identifying initiatives that can be implemented later in the year if supplies begin to challenge the capacity of packing plants.”

In addition, the Pork Board will again be using the “Where There's Pork, There's Fire” campaign that devotes checkoff dollars to assist retailers in promoting pork for outdoor grilling.

There will be extra emphasis on fall checkoff promotions, including “The Other Tailgate Party,” says Dallas Hockman, vice president of demand enhancement, National Pork Board.