Market Preview: Canada Launches Culling Program

US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 1 March 2008
clock icon 6 minute read
The government of Canada announced a Cull Breeding Swine Program this week that it is hoped will remove 10% of Canada's breeding herd from production. Here is what we know:
  • Can$50 million is the proposed budget;
  • The proposed program will pay $225 plus costs of slaughter and disposal per sow or boar slaughtered;
  • Producers must empty at least one complete barn and agree not to re-stock that barn for three years;
  • Sows and boars culled since Nov. 1 will receive $225 less the actual sale proceeds, provided the farm meets the other requirements of the program;
  • The animals must not enter the human food chain. They may be rendered for pet food or other purposes or disposed of on-farm in compliance with regional environmental standards.
The program is to be delivered through the Canadian Pork Council (CPC). Funding has not yet been approved by Canada's Treasury Board, but a release from CPC said that approval was expected soon, and then precise funding and participation details would be announced. No timetables for program implementation or animal removal were discussed.

Many Program Questions

Many questions remain. Is any barn a "barn" for the "empty the barn" requirement? Do sows and boars sold since Nov. 1 have to meet the "not enter the human food chain" requirement? (That seems very doubtful, doesn't it?) What is the time frame? These are not meant to be indictments, just recognition that specifics are very important and we do not have many at this time.

Winners and Losers

As with virtually all things economic and all things government, there are winners and losers in this idea. The winners in the short run will be those farms that are planning to exit the business anyway and will gain a windfall in sales revenue. Of course, the extra payment will quite likely entice some producers who had a "stick it out" mindset to liquidate breeding stock and that will be a net gain for the marketplace. In the long run, all Canadian and U.S. producers should benefit from the program due to larger and, perhaps, quicker reductions of hog supplies.

The biggest short-run losers will be sow/boar slaughterers, mainly in the United States, that will see the available supply of slaughter sows/boars fall by roughly 150,000 head over some yet unknown time period. Consumers will also lose as the price of sausage and other products made from cull breeding animals will be higher. Finally, Canadian taxpayers lose (depending, of course, on their view of the role of government) as their tax dollars go to pork producers.

Can It Make a Difference?

Is the program enough to make a difference? A reduction of 10% of Canada's sow herd will result in about 150,000 fewer sows and roughly three million fewer market hogs in the second year after the reduction begins. Some of that reduction would have occurred without the program. Perhaps all of it would have occurred eventually, but the program will speed up the process.

The net "gain" in output reduction may be around two million head. Barrow and gilt slaughter in the two countries totaled 124.551 million head last year. Will it help? Yes. Will it be sufficient to push hog prices high enough to cover 25% higher production costs? Definitely not.

Lest anyone think that I am being unduly critical of Statistics Canada regarding their Jan. 1 hog count, let's review the performance of USDA's December Hogs and Pigs Report. Figure 1 shows actual 2007 and 2008 weekly slaughter totals and the levels predicted by the Dec. 1 weight-class inventories. December slaughter ended up only 1.8% larger than was predicted by USDA's 180-lb. and over inventory, thanks in part to Christmas falling on Tuesday and reducing slaughter the last week of the year relative to one year earlier.

The real problem is this year, though. Actual slaughter since Jan. 1 has been 7.3% higher than the level predicted by the December report, and 6.8% higher than the Pred '08 line in Figure 1, which includes a 0.5% allowance for higher Canadian market hog inventories. Those in-shipments have been even larger than that level, though I believe the data we have is high due to the problems in the weekly border-crossing data. Even with the possibly-inflated figures, additional Canadian market hogs still account for only 160,343 head (13.9%) of the "extra" 1,152,100 head slaughtered thus far in '08.

Numbers Missed the Mark

How was USDA so far off in its Dec. 1 inventory of market hogs? We don't know the answer to that. Circovirus vaccine may have played a role, but we need to remember that circovirus vaccine impacts the survival of pigs to market weight, not the number of pigs born. So it should impact the number of heavy-weight pigs that were in the market herd at any point in time, and it doesn't appear that USDA got nearly enough of those counted in December.

Is there a structural change going on that would cause errors? Nothing like the big shift of ownership and farm size of the 1990's is occurring today -- but there are more pigs coming from Canada to be fed in the United States, and I think a growing proportion of those remain under Canadian ownership.

USDA ran into big trouble in the '80s and '90s when contract production started putting pigs on farms not owned by the pig owner. The result was double-counting. USDA's appropriate response was to quit worrying about sites so much and be concerned with owners. Are they tracking down the Canadian owners of these pigs?

Report Production Accurately

But there is something that U.S. producers can do right now to help: Answer USDA's March Hogs and Pigs survey with the most accurate data you can muster. USDA's statisticians cannot make a "silk purse" report from "sow's ear" responses.

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