Last week's Canadian Hog Statistics report has been a topic of discussion in many quarters this week. It appears that virtually everyone, including Canadian producers and industry analysts, believe that Statistics Canada has missed the count -- perhaps quite badly -- on the high side. I hope that's the case and that the Canadian data agency will do its best to revise the numbers if they are, in fact, wrong. I doubt, however, that will happen before they issue the next quarterly report in April.
I have talked to several people who believe that the Canadian herd was down significantly more than the published 1.9% and that the real reduction would result in fewer farrowings than were indicated in the report. Larger reductions would no doubt fit better with the economic situation in Canada and certainly would sit better with U.S. producers who are seeing a flood of Canadian pigs into the U.S. market.
It is my impression that U.S. producers can accept that flood of pigs if it is part of a liquidation and adjustment by Canadian producers. Continuing large imports and little or no reduction in Canada's herd, however, will begin to strain producers' patience quickly, especially if government payments, loans and other assistance grow.
Meanwhile, USDA's Livestock Market News is struggling to acquire and publish accurate data regarding imports of cull Canadian breeding animals into the United States. Figure 1 shows the data as they stand today. Last week, USDA tried a different categorization method that resulted in cull breeding stock imports for the week being roughly 15,000 head as opposed to the 6,836 head shown in the graph. The numbers for this year still defy logic and anecdotal evidence from sow buyers in Canada. The data shown in Figure 1 indicate that imports of cull breeding animals have been 11% smaller than one year ago thus far in 2008.
The bottom line: We are currently flying blind on the size of the Canadian breeding herd and the changes that are occurring. It appears that data agencies on both sides of the border have provided us with less than accurate information. That makes it very difficult, if not impossible, to make optimal decisions. I hope all of the agencies involved improve their efforts and their results and I urge producers to give them a little time to do so.
Lost amid my disappointment with the Canadian inventory numbers last week was news that U.S. pork exports had indeed set another record in 2007! This marks the 16th straight year of record export volume for the U.S. pork industry (see Figure 2).
This achievement was, perhaps, more satisfying than those of years past since it was definitely in doubt as late as July. Exceptional performance the second half of 2007, buoyed by surging shipments to China and Hong Kong, pushed carcass equivalent shipments 4.8% higher for the year. Product weight exports were 3.1% higher for the year and pork by-product exports were 11.7% higher.
When it comes to hog demand, though, the more important data are the values of exports, since it is dollars that speak in deriving demand back upstream. The values of U.S. exports were higher than in 2006 virtually all year and closed the year 9.6% higher for pork and 6.1% higher for pork variety meats.
The December data contained a couple of very interesting individual observations (see Figure 3). Shipments of pork to China were 32.4 million pounds carcass weight (73%) smaller than in November. A portion of that reduction was offset by 4.6 million pounds more product being shipped to Hong Kong, but I think it serves as notice of how fickle the Chinese market can be. While huge, the Chinese market is still subject to considerable central control that may or may not behave according to the normal forces of economics.
The data for Mexico was also interesting. Shipments to Mexico grew by 8 million pounds from November to December. And, December shipments were within 10% of the 2006 levels for the first time since April. Exports to Mexico were still quite disappointing, ending the year 26% smaller than last year, but the December surge was encouraging.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.