Market Integration in the North American Hog Industries
By U.S.D.A., Economic Research Service - About 8 percent of the hogs slaughtered in the U.S. in 2004 will originate in Canada—many more than 10 years ago. Canadian hogs have flowed into the U.S. in response to significant structural changes in the U.S. pork industry, concurrent with policy changes in Canada. This, combined with a strong U.S./Canadian dollar exchange rate, created incentives to expand hog operations in Ontario and to start production in Manitoba. In 15 years, an open border and pronounced breeding herd efficiencies helped to increase Canadian hog exports to the United States by more than eight-fold.
Introduction
More than 100 million hogs will be slaughtered in U.S. packing/processing
facilities in 2004. About 8 percent of the total U.S. hog slaughter will be of
Canadian origin. Of the 8 million Canadian hogs, about two-thirds will be
imported as feeder pigs, the other third as slaughter hogs. While almost all
imported Canadian slaughter hogs are transported directly to U.S. packer/
processing facilities, imported Canadian feeder pigs weighing between 10
and 40 pounds, are purchased by U.S. hog finishers and then housed in finishing
barns, typically in Corn Belt States. Over a 6-month period, feeder
pigs are each fed about 750 pounds of a ration comprised mainly of corn
and soybean meal. When the animals reach about 260 pounds, they are sold
to packer/processors and slaughtered.
The 8 million hogs imported from Canada in 2004 far eclipse the 1 million
head imported just 15 years ago. The composition of hog imports has
changed over time as well. In 1989, just 16 percent of imported Canadian
hogs were feeder pigs, versus close to 67 percent of hog imports in 2004.
The growth and re-composition of U.S. demand for Canadian hogs raises
two questions: What economic factors changed to create the Canada-to-U.S.
flow of hogs, and why are hog imports now mostly feeder pigs?
In a nutshell, Canadian hogs flowed into the U.S. in response to significant
structural changes1 in the U.S. pork industry, concurrent with important policy
changes in Canada. This, combined with a strong U.S./Canadian dollar
exchange rate, created incentives to expand hog operations in Ontario and
start production in Manitoba. In 15 years, an open border and pronounced
breeding herd efficiencies helped to increase Canadian hog exports to the
United States more than eight-fold.
Some Background, History, and Context
Canada is by far the primary exporter of live swine to the United States,
accounting for more than 99 percent of U.S. imports (tables 1a and 1b).
Canada's dominance of U.S. swine imports is due largely to a shared border
that extends almost 3,500 miles between the Pacific and Atlantic Oceans.
Such proximity between buyer and seller is necessary in trading so many live
animals.
The feeder pig share of total U.S. swine imports has increased from about 23
percent in 1990 to more than 67 percent in 2004. The slaughter hog share of
U.S. imports has declined from about 77 percent in 1990 to 32 percent in
2004, with breeding animals making up the balance (table 1b).
Where do the Canadian hogs go once they are imported into the United
States? A data series published weekly by USDA’s Agricultural Marketing
Service (AMS) reports import destinations on a regional basis. Most
Canadian swine imported into the United States from 2001 to 2004 were
shipped to major feed grain producing States or to packer/processors in hogdeficit
regions (fig. 1).
Some 95 percent of Canadian feeder pigs are shipped to two regions:
Region 7 (Iowa, Kansas, Missouri, and Nebraska) and Region 5 (Illinois,
Indiana, Michigan, Minnesota, Ohio, and Wisconsin) (fig. 2). Canadian
slaughter hogs are exported more widely, to States where packer/processors
demand more hogs than are produced regionally. Most Canadian slaughter
hogs are shipped to Western, upper Midwestern, and Eastern Corn Belt
States (fig. 3). About 60 percent of imported slaughter hogs were transported
to packer/processors in Region 8 (Colorado, Montana, North Dakota,
South Dakota, Utah, and Wyoming), and Region 9 (Arizona, California,
Hawaii, and Nevada). Regions 5 and 7 account for about 25 percent of
imported Canadian slaughter hogs.
AMS/USDA also publishes a weekly data series titled “Canadian Live Hog
Imports into the United States, by State of Entry.” From 2001 to 2004, 95
percent of Canadian hogs entered the United States through Michigan and
North Dakota (fig. 4). Two-thirds of Canadian feeder pigs cross the U.S.
border through North Dakota, and the other third via Michigan. More than
half of Canadian slaughter hogs enter the United States through North
Dakota, likely headed toward a large slaughter plant in South Dakota.
Twenty-seven percent of imported slaughter hogs come in through the
Western States of Montana and Idaho, suggesting destinations west of the
Rocky Mountains, such as California. Eighteen percent of slaughter hogs
enter through Michigan, suggesting destinations in Indiana, Kentucky, and
Pennsylvania.
A relatively new weekly data series, the “National Direct Feeder Pig
Report,” tracks price, volume, origin, and destination of large movements of
feeder pigs in the United States. Data from late 2002 to late 2004 show
that Iowa, Oklahoma, and Manitoba are the States/Provinces from which the
largest share of feeder pigs traded in the United States originate (table 2).
The largest destination States for traded feeder pigs are Iowa (38 percent)
and Minnesota (16 percent), falling off rapidly to Nebraska (8 percent). The
“other” category in States of origin and destination exceeds 25 percent, suggesting
that feeder pig production and finishing is widely dispersed throughout
the United States, but clearly concentrated in Corn Belt States, particularly
Iowa.
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To read the full article, please click here (PDF)Source: U.S. Department of Agriculture, Economic Research Service - November 2004