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Pork Commentary: Canada’s Industry Downsizes

by 5m Editor
6 May 2008, at 10:18am

CANADA - This weeks North American Pork Commentary from Jim Long.

Low hog prices, high feed prices and the increase in the Canadian dollar have devastated the Canadian swine industry. Canada’s breeding herd has now decreased approximately 180,000 sows from its zenith. According to Statistics Canada on April 1st the year over year Canadian breeding herd decline was 72,000 (1570.7 to 1498.7). Now the Canadian government sow cull has been activated. As of the end of last week we understand there were just under 100,000 sows enrolled to be slaughtered. Our inside sourced tell us that approximately 150,000 will be the eventual casualties. Put the numbers together. It indicates that Canada will end up with over 300,000 less sows than at the peak of production. That’s a lot of empty buildings, less feed utilization, less added value but most importantly there are people involved. People without jobs, producers and owners who have seen their dreams dashed by the cruel reality of the commodity marketplace. Producing food (pork) under the cost of production might be good for consumers but it is devastating to producers.

There obviously will be less pork generated by Canada’s production system now and in the future. Canada’s market hog inventory on April 1st was 1.65 million head fewer than a year ago (13,158.3 – 11,501.6).

This drop in production is rapidly decreasing Canada’s pork export capacity. As fewer hogs go on feed in Canada, the United States supremacy as the world’s pork export champion magnifies.

Other Observations

  • 2008 US sow slaughter has been consistently higher year over year. The latest number 73,000 per week. The US, we believe, is currently decreasing its sow herd 5,000 a week. There are next to no new sow barns being built. The plus/minus of sow inventory is mostly minus. Many sow units have fewer females as cash flow limit gilt retention and purchase. The price of sows is a reflection of the supply/demand. Last week some market hogs were bringing 60¢ live lb while heavy sows were 25¢ live lb. Usually there is a 10¢ lb spread. Now the huge number of sows coming to market is allowing sausage makers to buy at a very discounted price. They are paying 25¢ lb because that’s all they have to. Low sow prices are leading to sow retention rather than adding gilts. The breeding herd is getting older. This will lower productivity and lead to higher sow mortality in time, manifested by fewer potential market hogs.

  • Slaughter weights are falling fast – about one lb a week. This is despite the lack of hot or humid weather, hog growing conditions are excellent. One pound a week in weight decrease is pulling hogs ahead. Probably 5 to 7% a week. Might be over 100,000 head a week. You can only kill them once. How low weights will go with hot weather and $6.00 corn? Probably 250 lbs. Less hogs, less pork = higher prices. Pulling hogs ahead means this ‘dog is going to run out of chain.’

  • Got to love the wizard ag-economists that predicted four weeks ago $56.00 lean hog average for the balance of 2008. Check the futures. We got a $70 plus average to the end of the year. Hey, what’s $25 to $30 a head difference – unless you actually own hogs? Wonder sometimes if they can get across the road without traffic lights.

  • Corn-ethanol is in trouble. It’s being abandoned by the environmentalists. The states of Missouri and Texas are contemplating suspending mandated ethanol utilization. $6.00 corn is putting some corn ethanol processors in the red. Worldwide governments and agencies are questioning the social, political and economic implications. Food riots, hunger, starvation are all being associated with the corn ethanol insanity. We understand John McCain did not the Iowa caucuses because of his prior opposition to corn ethanol. Last week, in a bizarre and ludicrous statement, the head of the bio-fuel lobby said that corn ethanol had no effect on grain or food prices. DUH! Too bad cowboy - start looking for another job. Do the arithmetic, 99.5% of people eat ½ of 1% grow corn. Where do you think the politicians, environmentalists, consumers are going to point the finger? It’s over. It’s an election year. The higher corn price goes, the faster corn ethanol will be marginalized.

  • The corn growers that championed corn ethanol will rue the day. Livestock herds that are liquidating throughout the world cuts corn demand and utilization. It has been a plan to kill your customers. Someday you will want them back but they will be gone. Government policies that created tariffs, subsidies and mandates have distorted global food supply and pricing.

  • The Ontario Pork Producers Marketing Board (OPPMB), the official agency for all of Ontario’s hog marketings must be congratulated. Leadership is prevailing. After years of monopoly powers, hiring of their own police, top down management there is a breath of fresh air. Recently, the OPPMB General Manager left (the former Chief dog catcher at the Toronto Humane Society) after years of hostility with many leading producers. Hopefully this is a sign of reform. Canada and OntarioÂ’s hog industry is in transformation. When things are bad and restraint needed leaders know that flying first class is a symbol of privilege and entitlement not responsibility. Ontario has been devastated by lack of leadership in the past, the industry has downsized more than any other major hog producing area in Canada. For pro-Ontario producers’ sake OPPMB needs to find leadership with wisdom and knowledge. “People you would give money to buy you a used car.”

Summary

Looks like Canada will decrease 300,000 plus sows. The US will take out 200,000 before the dust settles. Mexico will be down 100,000. We believe 600,000 in total or about 10 million hogs of production capacity gone. We already have 70¢ lean plus hogs with US marketings over 2.2 million a week. Global pork demand for North American pork is unprecedented. The liquidation of the 600,000 sows has not decreased supply yet. It will come. Magnify this with decreasing of sows in just about everywhere in the world. We might be overly optimistic but we see continued price appreciation, at some point probably in 2009, we will see hog prices at levels that are incomprehensible. We all see how fast prices can rise. On March 21, Iowa-Minnesota was 48.89. By last Friday, May 2, it was 73.02 (6 weeks). A gain of $48.00 per head. We believe hogs will reach 80¢ lean in the coming weeks.

5m Editor