Highlights

• At October 1^st 2008, Canadian hog producers reported their inventories at 12.8 million, down 1.5% from the previous quarter and about 11% from a year ago.
  
• The breeding herd is down over 8% from last year.
  
• Hog production per sow continues to be higher in the West, as opposed to the East.
  
• Hog exports continued their decline from the first quarter, while slaughter decreased slightly from the previous quarter.

Analysis

Canadian Swine Inventory Decline Continues

At October 1^st 2008, Canadian hog producers reported their inventories at 12.8 million, down 1.5% from the previous quarter and about 11% from a year ago. The hog numbers began their decline three years ago, as rising input costs for feed coupled with declining hog commodity prices cut into the profit margins for producers.

Although hog inventories had levelled off at the beginning of 2008, they continued to decline slightly over the past two quarters. Uncertainty surrounding the U.S.A. Country of Origin Labelling (COOL) rules, which came into effect on September 30^th 2008, and the Manitoba hogs moratorium legislation, were major events that occurred during the third quarter. For the most part, producers are waiting to see how buyers and markets in North America will react to the new labelling rules. Several hundred operations also took advantage of the Federal Cull Breeding Swine Program to scale down their breeding herd over the last few quarters.

For the most part, there has been a downward trend in commodity and class. There have, however, been increases in large size market pigs in Quebec and Manitoba, which may be due to interprovincial movement and in particular, for Manitoba to hold on to large market pigs because of market limitations.

The national breeding herd is down over 8% 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 this federal program, the registered barns must remain out of production for at least three years.

The breeding herd is declining at a lower pace in the West, which may explain why the West is still increasing 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% in the East compared with 21% in the West. Western provinces account for 46% of the breeding herd and 49% of the hog production in Canada.

For the last two quarters, hogs exports continue to stand at about 2.1 million head. Year to date exports for January to September 2008 are up by 0.9% from last year, while domestic hogs slaughter reported a marginal decline of 0.1% from a year ago.

Canadian hogs 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 cycle. In the past, prices paid to producers for slaughter hogs have remained low for an unusually long period of time. The increased price of coarse grains, which 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% below the price for the first half of 2007, as robust U.S.A. hog production and the higher Canadian dollar continued to apply downward pressure on prices.

Financial pressures, the Canadian currency overtaking the American dollar, the hog moratorium, the U.S.A. COOL labelling legislation and the uncertainty over market conditions, has created a changing environment for the Canadian hog producers. Structural changes, barn and farm closures have taken place in the hog industry, as almost 16% of Canadian hog producers left the industry since October 2007. Among all hogs farms, regardless of size or degree of efficiency, the most financially vulnerable have been at risk.

Further Reading

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October 2008