USDA GAIN: Livestock and Products
18 September 2012
Stabilization in the Cattle Sector Continues
Excellent pasture conditions and an abundance of forage are currently the premises for continued consolidation in the cattle sector and will help weather the following period of expected high feed prices. Barley and wheat, both substitutes for corn in Canada, will be plentifully available, though at elevated costs. For 2013, Post forecasts a modest increase in total cattle inventories and calf production.
Data released by Statistics Canada on July 1st showed for the first time in seven years an increase in the number of beef cows. Albeit tiny, this expansion coupled with a continued increase of 3.5 percent in the number of heifers retained for beef cow replacement, suggests the cattle sector may soon move towards a new rebuilding stage. The total cattle inventories on July 1, 2012 are virtually unchanged from the 2011 level, confirming that after many years of decline the sector has now stabilized. Cattle prices have remained at high levels throughout 2012, well above the average levels of previous years.
Cattle Exports to Remain Steady Although Below Historical Levels
The Canadian relative cost advantage in feed, vis-à-vis the United States, supported primarily by excellent pastures and abundant forage, is likely to continue into 2013. Therefore, Post forecasts that live cattle exports will remain around the 700,000 head mark, comparable to the levels recorded in the previous two years.
The current year was one of two different stories. During the first half of 2012, exports of feeder cattle picked up significantly, up almost 46 percent compared to the similar period in 2011. This trend was curbed over the summer, when the prospect of a shortage of grains and of high feed prices settled in the United States, lowering the demand for feeder cattle, which remained in feedlots in Canada. Post estimates that the number of non-feeder cattle will increase during the second half of 2012, putting the total cattle exports estimate for the entire year at 6 percent above the total level in 2011.
Beef Supplies Stable despite Diminished Slaughter
Given a limited supply of slaughter cattle and a stable demand for beef, packers have become interested in heavier animals, allowing them to put on as much as between 4 to 6 percent more weight. The trend observed in 2012 is expected to continue into 2013, with heavier carcasses exiting slaughterhouses. Beef production is forecast to remain flat into 2013, for a third consecutive year, although slaughter will see a mild drop of 0.5 percent in 2013, after a more significant 4 percent decline in 2012.
Beef production is now forecast at 1.155 million metric tons (MT) for 2013, after an estimated level of 1.16 in 2012. Per capita domestic consumption is not likely to change much from the levels experienced in recent years. Following a period of steady decline, it seems to be stabilizing around 28.5 kilograms per capita of carcass weight equivalent.
Trade Remains Flat
With beef supplies tight, the market will rely on imports to fill the gap, which are forecast to increase by a meager 1 percent in 2013. A limited production and the continued strength of the Canadian dollar will remain the reasons why beef exports will continue to stay flat, below recent average levels. In 2012, Canada is expected to import the same amount of beef as in 2011, while exports are estimated to decline by almost 4 percent.
The United States continues to be the main export market in 2012 for Canadian beef, although at a lower level than in 2011. Exports to Mexico continued their declining trend started in 2010, as a result of their resumption of beef imports from the United Sates following the resolution of the trucking dispute. Imports, by contrast, are likely to see a tiny increase in 2012 as demand remains steady, with the United States as major supplier.
Difficult Times Again for the Hog Sector
The prospect of high feed costs and a reduced demand for feeder hogs in the United States have the potential to jeopardize the recovery in the hog sector, which began during the first part of 2012 with increased pig production and exports. Facing higher costs and struggling financially, some smaller producers have started to liquidate their inventories in the second half of the year, a trend expected to continue into 2013. Post forecasts a 2.5 percent decline in the sow herd and a 3 percent decline in pig production for the next year.
Data released by Statistics Canada on July 1st show larger overall hog inventories and an increased sow herd which presented for the first time in seven years a positive growth of 1 percent. These trends are more reflective of developments taking place during the first half of 2012, when recovery seemed to be well underway in the sector. Post estimates that this trend will change in the latter part of 2012. Post expects the sow herd will see another drop to 1.165 million head into 2013, which in turn will translate into a reduced pig production. The diminished demand in the United States for Canadian feeder hogs is going to impact primarily the feeder hog export provinces of Manitoba and Ontario, whereas Quebec, which is Canada's primary pork producing province, will be minimally impacted since their exports of live hogs are virtually negligible.
Live Hogs Exports to Decline
Similar to the situation in the cattle sector, 2012 is a year of two stories for hog producers. During the first half of the year, exports of live hogs picked up marginally, confirming a stabilizing trend started in 2011. The picture changed in the second part of 2012, with the prospects of high feed prices and reduced demand for feeder hogs. Post estimates that overall hog exports in 2012 will be 5.5 percent lower than in 2011, and forecasts an additional drop of 7 percent for 2013. Only an abundance of feed wheat and barley, which are the substitutes for corn in Canada, could break this trend. If poor weather is experience during the fall harvest and an otherwise good crop is downgraded, there may be a break in the trend.
Foreign Demand Continues to Support Pork Production
With two thirds of the Canadian pork production being exported, the industry relies on demand from foreign markets, which seems to have been exceptionally good during the current year. Given the existing slaughter capacity, pork production is only a function of the availability of slaughter hogs. A lower pig crop in both 2012 and 2013 will result in a proportionally lower pork production, as the prospect of high feed prices will not encourage increased hog weights to compensate for the reduced slaughter.
Per capita consumption of pork in Canada seems to have stabilized. For 2013, Post forecasts a consumption level of almost 21 kilograms carcass weight equivalent, similar with the levels in recent years. Per capita consumption is not likely to increase, as each year the population grows and pork has not managed to climb in popularity among proteins, despite sustained promotion by the industry.
Pork Exports to Come Down after Peak Year
The current year has been exceptionally good for Canadian pork exports. Despite the continued strength of the Canadian dollar, Post estimates total annual exports at 1.25 million metric tons (MT), a level never reached before and which is likely to remain hard to match in the near future. Based on lower pork production, Post forecasts a 4 percent decline in exports for 2013.
In 2012, Russia was the driving market behind increased exports, with a 77 percent boost in volume during the first half of the year compared to the similar period in 2011. Other Asian markets, like China and Hong Kong, also contributed to the export trend. Interesting to note is that sales to the South Korean market have dropped by one third, returning now to their pre- FDM (foot and mouth disease) levels as the country is recovering from the outbreak.
With additional pork supplies going into the export markets and a stable domestic demand, imports have had to make up the difference. For 2012, Post estimates pork imports at 240,000 MT, up almost 18 percent compared to the previous year, with the United States as major supplier. For 2013, Post forecasts a 6 percent decline in imports to 225,000 MT, a volume closer to historical levels.
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