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.

6 December 2004

5 minute read

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.