Canada Plays Important But Changing Role in U.S. Hog and Pork Markets
Canada’s pork industry depends heavily on exports. Canada’s 35.1 million people consume slightly less pork per capita than their U.S. neighbors, with a domestic market for only about 1.93 billion pounds of carcass-weight pork per year.
In 2015, Canada produced 4.366 billion pounds of pork, carcass weight, and exported 2.536 billion pounds, or about 58 percent of its total production. Canada imported 528 million pounds of U.S. pork in 2015, down 2.2 percent from 540.4 million pounds in 2014.
Canada exported 5.741 million live hogs to the United States for feeding and/or harvest in 2015. Of the total, 4.588 million were feeder pigs (about 45 lbs.) or weaned pigs (10 to 12 lbs.) that were fed to market weight in the United States. The other 1.152 million head were market-weight hogs or culled sows and boars headed to U.S. packing plants.
A Little History
Canada’s pork industry grew rapidly from 1995 to 2004. The breeding herd increased by over 50 percent, litters farrowed by 70 percent and pigs born by 83 percent. The larger percentage gains for farrowings and pigs born indicated a dramatic increase in productivity. This growth was driven by two major developments.
The repeal of transportation subsidies on grain shipments from the Prairie Provinces (Saskatchewan, Manitoba and Alberta) to the Pacific Coast, Ontario and Quebec drove grain prices lower in the Prairies and encouraged livestock production. Due to supply controls, neither the dairy nor poultry sectors could grow, so the pork sector and, to a lesser degree, the beef sector, took advantage of the opportunity.
Also, the Canadian dollar lost substantial value from 1997 through 2001. Canadian hog prices are U.S. hog prices converted into Canadian dollars. So when the Canadian dollar loses value relative to the U.S. dollar, Canadian producers see more Canadian dollars when they sell pigs regardless of whether the sale is to a U.S. or Canadian packing plant.
About half of Canadian pork producers’ production costs (mostly feed) rose due to the cheaper Canadian dollar. Since the weaker dollar caused all revenue to rise in Canadian dollars but only about half of costs to rise in Canadian dollars, Canadian producers had higher profits as the Canadian dollar weakened and thus increased the swine breeding herd and pig output.
But conditions changed dramatically starting in 2002. The Canadian dollar strengthened steadily until flattening in late 2007 when the Canadian dollar was worth about $1.03 U.S. With the exception of the recession of mid-2008 through mid-2010, the Canadian dollar remained near par with the U.S. dollar until early 2013.
The 2002-2007 strengthening of the Canadian dollar, quite logically, had the opposite effect of the pre-2002 weakening: It reduced 100 percent of Canadian producers’ income while reducing only about 50 percent of costs, driving profits lower.
Canadian producers also dealt with the same higher grain and oilseed prices that plagued U.S. producers from 2006 through 2013. They gained a slight advantage in 2012 due to very good Canadian wheat, barley and canola crops while U.S. crops were adversely affected by a drought.
Canada’s breeding herd shrank 26 percent from 1.597 million head in January 2005 to 1.214 million head in January 2013. The breeding herd is estimated to have increased marginally to 1.238 million head as of January 2016. The January 2016 figure is 1.6 percent larger than one year earlier.
Since early 2013, the Canadian dollar has once again steadily lost value versus the U.S. dollar. It bottomed at $0.694 US per Canadian dollar in January 2016 before regaining about 12.5 percent (moving to $0.781 US per Canadian dollar) by July 1. The weakening of Canada’s currency will again provide some incentives for the Canadian pork sector to grow if it persists.
A Downward Trend
Canada’s contribution to U.S. hog supplies declined steadily from 10.04 million head in 2007 to 4.947 million in 2014. It then grew in 2015 to 5.741 million head, up 16 percent from 2014 due to two unusual occurrences. First, packing plants in Quebec were closed for two weeks in April 2016 due to a labor strike. The closures drove several thousand pigs to U.S. plants.
Second, Quality Meats’ Toronto plant closed in July 2016 leaving Ontario with insufficient slaughter capacity to handle its production. Some hogs went to Quebec and some to U.S. plants for slaughter.
The Canadian pig import decline from 2007 to 2014 was exacerbated by the U.S. mandatory country-of-origin labeling (MCOOL) law that went into effect in 2008. The law made handling pork from pigs born in Canada and fed in the U.S. or born and fed in Canada more expensive and difficult for U.S. packers, processors and retailers.
The World Trade Organization (WTO) ruled the program illegal on four occasions from 2011 through 2015 and finally granted Canada and Mexico the right to place retaliatory tariffs on U.S. products in mid-2015. Just prior to those tariffs becoming effective, the U.S. Senate finally decided to pre-empt a trade dispute between the U.S. and its neighbors by repealing the meat, livestock and poultry provisions of the MCOOL law. The repeal of MCOOL clears the way for more pigs to come south from Canada for feeding and slaughter in the U.S., but most analysts expect the increase to proceed at a modest pace.