Statistics Canada released its quarterly estimate of Canadian hog and cattle numbers earlier this week. The reports indicate a continued decline in cattle numbers and mixed data for hog numbers.
The hog report shows that the past year's breeding herd reduction continues with breeding animal numbers 1% smaller than those of Jan. 1, 2006 (see Figure 1). When combined with a larger U.S. breeding herd, this leaves the U.S.-Canadian breeding herd up 0.8% vs. year-ago levels. The industry has the capacity to produce modestly higher pig numbers during 2007 -- probably about enough to keep up with population growth.
Any increase in exports or reductions in carcass weights (both are very likely, in my opinion) will mean that the amount of pork available per capita in the United States and Canada combined will be less than in 2006. That also should be supportive of hog prices.
A caveat to this supply situation is the recovery of Canada's farrowings and pig crop from the relatively low levels of the past year or so. Farrowings for the October-December quarter were down fractionally from 2005, where the previous three quarters had been from 1.7 to 2.8% lower. Since the reduction in farrowings was smaller than that of the breeding herd, it appears that this facet of productivity has once again begun to improve after being flat or dropping for the past year or so.
Canada's fourth-quarter pig crop is estimated to be 0.7% larger than last year. That's the first positive year-over-year number for the pig crop since the 3rd quarter of 2005. Two of the past four quarters had seen crops that were over 2% lower than year-earlier levels.
The major reason for this improved productivity, of course, is that Canadian producers and veterinarians have started to get the health challenges (primarily porcine circovirus-PCVAD associated diseases) that have decimated many herds over the past two years under control. My conversations of the past few months have indicated that the new PCVAD vaccines are very effective. As vaccines become more and more available, their impact will be more widely apparent. In addition, even the farms that have not used vaccine have found ways to manage pig flow, grouping, etc. to minimize the impact of PCVAD. While productivity on these farms is still below pre-PCVAD levels, the output impacts aren't nearly as disastrous as they once were.
We will see some of these same positive impacts in the United States, but they will not be as dramatic since the U.S. industry simply hasn't seen the proportion of negative impacts that have been reported in Canada. I expect this development to have a modest, positive impact on output in 2007, and for that impact to be spread over time, and geography enough that it will be difficult to see in the slaughter data.
Unless we see some major positive impacts on the productivity in the March and April reports, I'm not ready to start increasing 2007 slaughter numbers. Supplies still appear quite manageable for this year, but futures are still offering higher prices than I can comfortably forecast, based on 2006 prices and '06-to-'07 supply changes.
Cowherd Down 5%
On the cattle side, Canadian ranchers continue to reduce the beef cowherd with the Jan. 1, 2007 herd down 5% from one year earlier. This represents a continued push to get cow numbers back toward pre-BSE (bovine spongiform encephalopathy) levels of around 4.5 million head.
Canada had 5.001 million beef cows on Jan. 1. These numbers ballooned after the discovery of BSE in May 2003, as Canada could not ship cull cows to the United States for slaughter and, generally, could not export product from these animals. Combine that with limited cow slaughter capacity and you get a large backlog that is now slowly being worked through. A key to the pace of this reduction will be the current USDA proposal to relax restrictions on imports of beef product from older animals.
Canada's 2006 calf crop was projected at 5.5 million head, 2% smaller than in 2005. When combined with a U.S. crop that was virtually the same as in 2005, this implies that cattle supplies in late 2007 and beyond will be a bit smaller. That should be supportive to hog prices at a time that we may need all the help we can get to pay feed bills.
Packer News
Finally, there was some good news on slaughter capacity from Canada this week. Kevin Grier of the George Morris Centre sent a message on Tuesday that employees at Olymel's Vallee-Jonction plant had voted to accept a government conciliator's recommendation on a new contract. Grier believes that means the plant will not be closed on May 25 as previously announced.
Canada still appears to have excess slaughter capacity and that will keep a lid on packer margins for the foreseeable future, so don't be surprised by news of more of these kind of situations -- at least until that excess capacity is rationalized.
Click to view graphs.