February 17, 2010

Canada hog, cattle herds shrinking fast

Rising costs and export barriers are causing Canada’s hog and cattle herds to shrink to their smallest size in more than a decade.

Canadian hog herd fell 4.5% on-year to 11.63 million head on January 1, the smallest in 12 years, while cattle herd slipped 1.3% to a 15-year low of 13.015 million head, according to Statistics Canada on Tuesday (Feb 16).

The reduction in cattle is due to beef cattle ranchers downsizing their herds, while the supply-managed dairy cattle herd changed little year over year.

Ranchers and hog farmers have suffered from a surge in feed grain prices since 2007 due to increased ethanol demand, said Statistics Canada. The appreciation of the Canadian dollar and implementation of the US country-of-origin meat labelling (COOL) law last year have also sharply reduced livestock exports.

Farmers are earning C$127 (US$121.6) per finished pig, well below the break-even level of C$140 (US$134), said Andrew Dickson, general manager of the Manitoba Pork Council. Farmers need about C$160 (US$153.2) per slaughter pig to account for their average debt load, Dickson said.

Feed companies are also suffering from farmers slashing herd sizes, Dickson said.

Downsizing of the beef herd will likely continue into 2011 or 2012, said market analyst Scott McKinnon.

He noted there is an overcapacity in feedlots and packing plants, which will play a part, and nothing will change until demand is improved. The industry needs to see a global economic recovery that would revive demand for beef, McKinnon said.

The cattle herd shrunk 4.3% in Alberta, but grew 5.7% in the adjacent western province of Saskatchewan. The increase there likely reflects Alberta farmers feeding their cattle elsewhere to cope with drought conditions, McKinnon said.

Unlike the cattle industry, the hog sector is carrying out a planned downsizing to turn around its long-term decline, aided by government incentives to farmers ceasing production.

Cheap retail pork prices in Canada have kept consumption high, Dickson said. Downsizing and that strong demand should stabilise or increase store prices later this year, he said.

Dickson said the Canadian industry's downsizing does not have a major impact on Chicago live hog futures LHc1, which have gained nearly 13% from a year ago. Chicago live cattle futures LCc1 have risen 11% in the last year.