December 17, 2013
Canadian pork: A weak number two exporter
Domestic consumption slowly rises as exports tail off and their market base stops diversifying.
By Eric J. BROOKS
An eFeedLink Hot Topic
After a decade when almost everything except exports declined, Canada's swine sector is showing signs of stabilising -even as its trade performance becomes spottier.
According to the USDA, Canadian per capita pork consumption fell from 32kg in 1980 to 29kg in 2000 before levelling off at 21.1kg in 2011. Since then, with chicken consumption near the saturation point and beef relatively more expensive, per capita pork demand recovered over two years, to 22.1kg in 2013 and the USDA expects it to stay unchanged in 2014.
The decade long, 27% fall in per capita consumption means that even though Canada's population increased by 3 million people or 10% over this time, Canadians consumed 11.3% less pork in 2013 than they did in 2001. The industry was saved by its exports. They account for roughly 67% of production, and increased 71% in ten years, from 0.728 million tonnes in 2001 to 1.24 million tonnes in 2011.
Unfortunately, after peaking record 1.24 million tonnes in 2011, exports stayed flat at this level in 2012 and 2013, and are expected to remain unchanged in 2014. With approximately 67% of Canada's 1.85 million tonne pork output being exported and the domestic market demand increasing by a USDA estimated 1.55%, output is rising just under 1% to meet the estimated overall demand increase.
The nominal increase in domestic demand and flat exports are however, complimented by a strong market for live hogs. Throughout 2013, prices were generally 10% to 20% higher than in the same month a year earlier. The positive impact on producer margins was augmented by the near 40% fall in feed costs that occurred over this time.
Nevertheless, despite the improved profitability this brings, the USDA reports that Canadian hog farmers are still haunted by the debts incurred during the last, pre-recession expansion cycle and subsequent losses incurred during the 2008-09 downturn. With demand only rising nominally, hog farms would find it far less risky to use the higher returns to repay past debt than to embark on capital expansion.
Consequently, to avoid investing in additional production capacity, the required supply increase will be achieved via heavier carcass weights rather than through expanded hog herds. Inventories are expected to remain flat, with the difference between supply and demand to be made up by a 12,000 tonne, 17.9% drop in closing inventories from 67,000 tonnes in 2013 to 55,000 tonnes in 2014.
In fact after declining by 17.6% from their 2005 peak of 15.195 million hogs, July 1st Canadian hog inventories bottomed out to 12.525 million head in 2011, with July 1st hog numbers tapering off to 12.9 million range in 2012 and staying there in mid 2013. The USDA expects Canadian hog inventories to start 2014 slightly higher, at 13.180 million head, then decline to close this year at 13.137 million head
This is 15% below their 2005 peak of 15.11 million, even though this year's pork production will be 4.8% higher. The higher carcass yields and finishing weights this implies are reflected in sow numbers. Sow inventories have remained constant at 1.185 million to 1.195 million head throughout 2012, 2013 and are expected to be in the upper end of this range in 2014, some 25% below their 2005 peak.
With the domestic market growing slowly but exports accounting for a majority of output, the flat live hog and sow numbers also tell the story of frustrated trade hopes. Essentially, higher exports to the United States (+7.8%), Mexico (+54.9%) and China (+78.2%) are being offset by losses in Russia (-59.9%), Japan (-11.1%) and South Korea (-25.9%).
To a certain extent, Japan's export losses could not be helped, as its ongoing recovery from the tsunami and 2011 nuclear meltdown cuts back its import requirement for most meat lines. That however, is not the case in other markets.
With Russia banning ractopamine in pork, only a handful of Canadian plants can be certified as being entirely free of this substance. This means that after rising 76% from 2011's 70.7 thousand tonnes to 124.9 thousand in 2012, 2013 shipments are plunging back 59.9% to a mere 50.1 thousand tonnes.
Similarly, South Korea's recent free trade agreement with the US resulted in lower tariffs that put American pork on a more competitive footing, thereby driving Canadian pork from that large Asian market.
Essentially, from 2011 to 2013, slightly over 79,000 tonnes in increased January to June pork exports to the US, Mexico, China, Taiwan, Philippines and Ukraine where more than offset by over 71,000 tonnes in export reductions to Japan, South Korea and Russia, with higher exports to America and Mexico being the only factor that kept Canadian pork exports constant.
What is also telling is that after watching the percentage of pork exports accounted for by the US fall from 80% in the early 1990s to 29% in 2011, the US share has since rebounded to 32%, with Mexico accounting for another 5% of exports.
This implies that instead of diversifying its pork export profile towards Asia, Canada is leaning too much on just two NAFTA trade partners to keep the 67% of pork production not accounted for by its own market in business.
Although it remains solidly in second place in world pork exports after the United States, the latter is diversifying its export profile on the world market, whereas Canada's performance, impressive as it is, is based on a shaky foundation of too few countries. That is also the reason why, whereas Canada was ahead of America in pork exports in the early 2000s, America now exports twice as much pork as Canada.
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