October 30, 2008

Canada's hog inventories as of October 1 totalled 12.795 million head, down from 14.360 million a year earlier and lower than the 12.985 million during the quarter ended July 1, according to Statistics Canada.

The agency said hog numbers have been declining for the past three years, reflecting rising input costs for feed and declining hog prices, which have cut into profit margins for producers.

Although hog inventories had leveled off at the beginning of 2008, they continued to decline slightly over the past two quarters, Statistics Canada said. The third quarter was marked by uncertainty surrounding the US Country of Origin Labelling (COOL) rules, which came into effect on September 30, and Manitoba's hog moratorium legislation. For the most part, producers are waiting to see how buyers and markets in North America will react to the new labelling rules.

The agency also noted that several hundred operations took advantage of the Federal Cull Breeding Swine Program to scale down their breeding herds over the last few quarters.

The national breeding herd is down more than 8 percent from last year. Registrations from the Cull Breeding Swine Program indicate that 124,000 breeding animals have been taken out of the herd since November 1, 2007. Under the programme, the registered barns must remain out of production for at least three years.

Statistics Canada said the breeding herd is declining at a slower pace in the West, which may explain why the area continues to increase its share of the national breeding herd. Hog production per sow continues to be higher in the West as opposed to the East, with new technology and farm management improvements. Within the last decade, sows increased by 2 percent in the East compared with 21 percent in the West.

For the last two quarters, hog exports stood at about 2.1 million head. Year-to-date exports for January to September were up by 0.9 percent from last year, while domestic hog slaughter declined 0.1 percent from a year ago, the government agency said.

Statistics Canada also noted that Canadian hog producers have had to cope with very narrow or even negative profit margins in the past several years. The hog price cycle has traditionally been described as a three-year one. However, the prices paid to producers for slaughter hogs have remained low beyond this time frame. The increased price of coarse grains that are used in feed, and which normally account for almost half of the hog farm operating expenses, has reduced profit margins. In 2008, the average price received by hog producers was 21.7 percent below the price for the first half of 2007, as robust US hog production and the higher Canadian dollar continued to apply downward pressure on prices.