January 05, 2004
Canadian Hog Production Up Despite Falling Prices
Despite falling hog prices leading to many of Canada's smaller hog producers closing their barns, Canadian hog production was up in 2003 due to large producers increasing their stock.
Manitoba and Saskatchewan represent about 28% of Canadian hog production. Many hog producers in these provinces were forced to reduce stock or even close barns in 2003, due to poor prices brought on by last May's bovine spongiform encephalopathy, or mad-cow disease, scare in Canada and the strengthening Canadian dollar, said Neil Ketilson of SaskPork.
The impact of the recent discovery of BSE in the U.S. is difficult to quantify, but it is expected to eventually have an indirect impact on the Canadian hog market, said Tyler Fulton, director of risk management for the Manitoba Pork Marketing Coop Inc.
SaskPork's Ketilson said there were about 750 hog producers in Saskatchewan in 2002 but that that number has dwindled to about 530. "It's no fun out there," Ketilson said. "The producers are having a very difficult time."
Saskatchewan hogs are now priced at about C$105 per head, down sharply from C$125 to C$130 per head last year at this time. Ketilson said the majority of producers in Saskatchewan will need prices in the C$140 to C$150 per-head range before they consider restocking barns.
"They'll need to see confidence come back into the market. And it won't be a short-term thing. It won't be a month's good prices. It'll be something that will happen over a year or two."
Manitoba is the biggest exporter of hogs on the Canadian Prairies. Though he wouldn't speculate on how many hog barns have shut down in Manitoba over the past year, Manitoba Pork Marketing general manager Perry Mohr said present low hog prices are a major concern for the Manitoba pork industry.
Manitoba hog prices are currently about C$120 per head, down from C$125 last year at this time - an uncomfortably low number for farmers, considering the production cost is between C$110 and C$160 per hog, Mohr said.
"I am very concerned that there will be a considerable number of barns shutting down," Mohr said. "Our industry has not been very profitable. Our estimates show that over the last five years, there have been only six profitable quarters."
Mohr said that diversified farms stand a better chance of survival under present market conditions, since these farmers can survive off income from their grain farms.
Mohr said hog prices will need to rise to about C$140 per head before Manitoba producers will likely begin restocking barns. This figure, he noted, will depend on input costs, which could increase more if corn and soybean prices continue to rise, he said.
Ketilson said the majority of hog producers who have closed barns were small operations, with 50 head or less, although he noted a major Saskatchewan operation with 2,200 head was recently forced into receivership because of the price crisis. Ketilson added that as smaller pig farms drop off, larger hog producers are expanding production because larger producers generally have lower production costs.
In fact, production of slaughter and weaner hogs in Saskatchewan was at two million in 2003, up from 1.9 million in 2002. This figure is consistent with Ontario and Quebec where hog production saw increases in 2003. In Ontario, hog production was quoted at 19.9 million in the third quarter of 2003, up from third-quarter 2002 production of 18.2 million. Quebec saw an increase from 18.2 million head in the third quarter of 2002 to 18.9 million in third-quarter 2003.
Ketilson said hog prices would likely be on the positive end of the cycle at this time if not for two factors - the BSE scare and this year's 17% increase of the Canadian dollar. "Typically there's a cycle to the prices in the hog industry, and we thought we would have come out of this by now," Ketilson said.
Mohr agreed. Before the U.S. BSE scare, the Canadian BSE scare and the Canadian dollar's gains had already "taken about C$20 per pig out of Everybody's pocket," he said. "Government and consumer support for the beef industry following the (Canadian) BSE crisis caused hog prices to drop," Ketilson said, adding Saskatchewan hog prices fell C$7 per head because of sluggish demand over the past six months.
The decrease in hog producers this year will have grim consequences on the market, Ketilson said. "This is going to have a major impact on all of the suppliers, especially the grain markets and grain producers" that produce livestock feed, Ketilson said.
Looking into the long- and short-term future of the Canadian hog market is difficult at this time, said Canadian Pork Council executive director Martin Rice. The outlook mainly will depend on the future of the Canadian dollar, he added.
"We are seeing signs that hog production is going to level off, in terms of the total number of slaughter pigs that will be available in the new year," Rice said.
ANY IMPACT FROM U.S. BSE COW WOULD COME LATER
As for the impact of the U.S. BSE discovery on Canadian hogs, Manitoba Pork Marketing's Fulton said:
"With the result of the BSE in the U.S. and plummeting beef-product prices there, I suspect it will not be sustainable for pork prices to say at the levels they are at currently. I fully expect U.S. pork prices to also experience some sort of downward impact, which then has implications for Canada's hog producers."
He said impact on the pork futures market has not been all that significant but that it might only be a matter of time before the details of the news is fully understood.
"I just don't think it is sustainable to see a 20% drop in cattle prices and not even a blip on the hog side of the coin," he said.
He pointed out that supply is really unresponsive to short-term demand.
"If beef prices, for example, in the U.S. fall 20%, and pork-product prices eventually fall 10%, then you are going to see packers less willing to pay the same prices for those hogs," Fulton said. "But the earliest you will see a drop in hog production is still 10 months down the road if those values stay depressed for any length of time."
