Report Highlights

Lower production levels, a development forecast to extend throughout 2008, currently characterize Canada's beef and pork industries. Beef production in 2007 is expected to reach about 1.345 million metric tons (MMT), about 3.0% below the 2006 level. Pork output will fall about 2.5% from 1.898 MMT to about 1.850 MMT in the current year. These industries are deeply concerned about U.S. Country of Origin Labeling legislation that they feel could require U.S. buyers to segregate Canadian meat in the U.S. market resulting in a strong disincentive to import it. U.S. beef exports to Canada have returned to their pre-BSE level. The development is significant in that it occurred during a period of near-record cattle slaughter in Canada and demonstrates strong demand for U.S. beef in Canada.

Executive Summary

THIS REPORT DOES NOT CONTAIN OFFICIAL USDA DATA

The inventory data in this report has been adjusted to align with the 2006 Census of Agriculture data released by Statistics Canada on May 16, 2007. The data contains revisions back to the last Census (2001) to many of the inventory elements of cattle and hog supply.

• Canadian beef and veal production is 2.5% lower in the first three quarters of 2007 compared to that period a year ago. A lower cattle inventory and prospects for increased exports of live cattle to the United States point to a further reduction in total beef and veal output during 2008 of about 3%.
  
  
• On September 14, 2007, USDA announced Minimal Risk Rule 2 (MRR2), a final rule that allows for the importation from Canada of live cattle and other bovines (i.e., bison) for any use (including breeding) born on or after, March 1, 1999. The action is not expected to result in a flood of older live cattle imports from Canada after its scheduled implementation on November 19, 2007.
  
  
• Post forecasts that by January 1, 2008, Canada’s total cattle inventory will decline close to the pre-BSE level of 13.8 million head, a reduction of more than 1.0 million head from the opening inventory at the beginning of 2005, the year numbers hit their peak.
  
  
• U.S. exports of beef and veal to Canada returned to their pre-BSE level during 2007. The development is significant in that it occurred over a period of near-record cattle slaughter in Canada and demonstrates strong demand for U.S. beef in Canada.
  
  
• Canadian beef exports have not recovered to their pre-BSE level. Present Post analysis is that Canadian beef exports in 2008 may struggle to meet 2007 levels due to a combination of economic factors.
  
  
• Following several successive years of expansion, Canada’s hog inventory peaked during 2005 at 15.2 million head. Since that time, lower Canadian exports of pork, declining slaughter capacity, and reduced profitability for producers have combined to result in the total hog inventory slipping to 14.7 million head on July 1, 2007, 2.5 % below a year earlier on that date and 3.3% below the peak of 15.2 million at July 1, 2005
  
  
• Post forecasts total Canadian pork production during 2007 at about 1.850 MMT, down 2.5% from the 1.898 MMT produced in 2006. For Canada’s hog processing industry, the past 18 months has been characterized by several factors culminating in lower pork production.
  
  
• Canadian hog producers exported a record 8.8 million live hogs to the United States during 2006 and are on pace to export about 9.4 million head during 2007 based on trade data for the for the first seven months of the year. Exports in 2008 may be higher again.
  
  
• Canada’s beef and pork industries are deeply concerned about U.S. Country of Origin Labeling legislation in that they fear COOL provisions could cause U.S. packers and purveyors of meat to be required to segregate Canadian meat in the U.S. market resulting in a strong disincentive to import Canadian slaughter animals and meat. They believe that significant trade disruption could result in substantial economic loss for the Canadian livestock and meat industry and claim that Canada would be justified challenging COOL in its present form at the WTO and under NAFTA.

Hogs and Pork

Following several successive years of expansion, Canada’s hog inventory peaked during 2005 at 15.2 million head. Since that time, lower Canadian exports of pork, declining slaughter capacity, and reduced profitability for producers have combined to result in the total hog inventory slipping to 14.7 million head on July 1, 2007, 2.5 % below a year earlier on that date and 3.3% below the peak of 15.2 million at July 1, 2005.

Pork Production

Post forecasts total Canadian pork production during 2007 at about 1.850 MMT, down 2.5% from the 1.898 MMT produced in 2006. For Canada’s hog processing industry, the past 18 months has been characterized by several factors culminating in lower pork production. They are:

1. Corporate restructuring by the largest hog processors resulting in some plant closures;
2. Adjustment to the longer term hog processing and pork marketing strategies of the major packers, (See FAS report numbers CA6046 and CA60503 re: Maple Leaf Foods);
3. falling domestic demand for pork,
4. reduced pork exports, and;
5. increased exports of live slaughter pigs to the United States.
   

Production Outlook

The outlook is for lower pork production during 2008. There is an overall decline in hog inventory numbers and increased exports of Canadian slaughter and feeder pigs to the United States above the 9.0 million head level in 2007 means that Canada is exporting a sizeable proportion of its potential pork production in live form. In addition, the recent dramatic rise of the Canadian dollar to a level above the value of the U.S. dollar, is expected to result in increased competition for Canadian pork in world markets. Post believes total pork output in 2008 may slip to about 1.790 MMT, down 3.2% from the present estimate for 2007 of 1.850 MMT.

There is acute concern in the Canadian hog industry over COOL legislation in the United States. Chiefly, the concern centers on the possibility that U.S. purchasers of Canadian live hogs, feeder or for slaughter, could be required to “label identify” the birth country, the country of raising, and the country of slaughter of imported pigs. Canada’s industry is concerned that the expense of segregating Canadian animals and verifying their labeling will result in U.S. packers no longer purchasing Canadian swine

Canadian Live Swine Exports to the U.S.

Canadian hog producers exported a record 8.8 million live hogs to the United States during 2006 and they are on pace to export about 9.4 million head during 2007 based on trade data for the first seven months of the year. As mentioned earlier in this report, Canadian hog plant closures have resulted in increased exports of slaughter swine to the United States in 2007, while increased feeder exports are partially tied to reduced profitability prospects for hog finishers in western Canada, citing high feed costs and weak hog market prices, and particularly in Manitoba where the industry is struggling with a climate of uncertainty surrounding environmental regulation that has banned hog barn expansion and thwarted processor expansion. For 2008, post forecasts a continued high level of live Canadian hog exports to the United States increasing to the approximate range of 9.5-9.6 million head. This level could be moderately lower if the Brandon, Manitoba processing plant began a second shift in 2008, or if the COOL legislation results in a disincentive for importing live hogs from Canada in the last quarter of 2008 (the planned implementation date of COOL).

Per Capita Consumption

According to Statistics Canada, per capita pork consumption increased fractionally during 2006 ending a series of annual declines since pork consumption peaked during 2001. Despite the development, per capita pork consumption in Canada fell almost 20% over the six year period 2001-2006. Some of the factors behind declining pork consumption include 1) Strong retail prices during a period when BSE-related issues boosted Canadian beef supplies, 2) Consumer perception that the preparation of pork based meals at home is lengthy compared to other meats and; 3) pork’s inability to capitalize on foodservice market gains shared by other meats and fish.

Pork Imports

U.S. pork sales to Canada increased 6% during 2006 to reach 111,794 MT (product weight) and advanced an additional 5% in the first seven months of 2007. Canadian pork imports have increased in recent years reflecting the appreciation of the Canadian dollar and demand for U.S. fresh or chilled pork cuts, including back ribs and for U.S. prepared pork including pre-packaged sausages. More than 80% of pork imported from the United States is destined for Ontario and British Columbia. For 2008, demand for U.S. pork in Canada is expected to increase modestly reflecting the outlook for lower Canadian pork production and forecasts of an even stronger Canadian dollar.

Pork Exports

After more than ten years of consecutive annual increases, Canadian pork exports during 2006 fell fractionally from the year earlier level and are poised to register a further decline in 2007. The table shows Canadian pork exports, by country, on a product weight basis, 2004-2006. In the first seven months of 2007, total pork exports slipped 4% from their mark at the same time a year ago. Lower exports to Russia were a major factor in the decline but exports to small markets (shown below as “All Others”) were off sharply, down 59% from their seven month tally in 2006. For 2008, the outlook for lower pork production in Canada, prospects for increased live hog exports to the United States, and prospects for a strong Canadian dollar point to lower Canadian pork exports, probably in the neighborhood of 1-1.5% lower than the 2007 realized level.

Further Reading

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October 2007