Last week’s hog report from Statistics Canada indicated that the decline in the Canadian breeding herd may finally be ending.
As of Jan. 1, Canada’s breeding herd numbered 1.314 million head (Figure 1). That is still smaller than one year ago by 1.4% (Figure 2), but is slightly larger than the Oct. 1 inventory of 1.307 million head.
The report comes on the heels of the U.S. Dec. 1 inventory of 5.778 million breeding animals. That number, too, was smaller than one year earlier (by 1.2%), but was slightly larger than the Oct. 1 inventory.
Adding the U.S. Dec. 1 herd and Canada’s Jan. 1 herd reveals that the combined herd totals 7.092 million head, 13,800 more than on Sept. 1 and Oct. 1 in the two countries. The total is still 1.2% smaller than one year earlier, but the most recent quarter marks the closest that either herd has been to year-earlier levels for some time. In fact, the last time Canada’s herd was this close to year-ago levels was September 2005. For the U.S. herd, it was June 2008, when the year-on-year decline was this low.
The same can be said for the pig crops of both countries for the latest reported period – September-November in the United States and October-December in Canada. Canada’s crop of 7.737 million head is still 1.3% lower than one year ago, but that number is the closest to zero since Q1 2007. The U.S. pig crop is pegged at 28.151 million head for the fall, 0.4% smaller than last year. Put the two together and that crop of 35.888 million head is 0.6% smaller than one year ago.
The bottom line is that 2011 pig supplies is expected to be much like 2010 pig supplies. While current futures markets are offering profits for U.S. producers and Canadian producers, who actually enjoy a feed cost advantage at present, we still believe margins are not large enough to encourage any significant expansion this year, especially in light of production cost risk and huge capital requirements.
As of Friday, Feb. 18, our model says that Iowa farrow-to-finish operations could lock in profits of $9.24/head for 2011. But it requires a total investment of over $170 to earn that profit and there is still substantial risk that costs could rise – especially given today’s rise in oil prices resulting from the growing unrest in the Mideast.
Another implication of this steadying of the Canadian herd is a concurrent steadying of pig imports from Canada. As Figure 3 shows, the numbers of pigs and hogs of all types coming across the border have leveled out considerably over the past couple of years.
Market hog imports fell sharply in 2008, as Canadian hog numbers dropped and the U.S. mandatory country-of-origin-labeling (COOL) law took effect. That number more-or-less stabilized at 11,000 to 13,000/week in 2009. We think they will remain at about this level since U.S. packers have protocols in place to handle Canadian-born pigs.
Canadian sow/boar imports have also stabilized. COOL regulations did not impact these animals much since processed products, such as sausage, are exempt from COOL. Stable imports of sows and boars are more a result of a stabilizing Canadian herd.
Finally, Canadian pigs coming south for feeding have numbered between 75,000 and 100,000 every week since February 2010, after falling steadily from their peak of 166,000 in late 2007. Here again, stable imports are primarily due to a steadying Canadian breeding herd and pork sector. But, a steadying U.S. herd also implies a more or less constant need for imported pigs.
We find it interesting that this number has stayed as high as it has following implementation of COOL. These pigs still have to carry “label B,” which lists both Canada and the United States as product origins for product sold through retail outlets. The fact that they are still being used underscores a) the need for the pigs in the United States, b) the adaptability of U.S. packers in using the pigs in various market channels, and c) the ultimate result of U.S. consumers either not caring much about origins or viewing Canada as an origin equal to the United States.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.