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Canadian and US Pork Industries Adjust to M-COOL

by 5m Editor
8 November 2008, at 4:19am

CANADA - In the wake of the September 30 introduction of U.S. Mandatory Country of Origin Labelling pork producers and processors on both sides of the Canada-U.S. border have begun what has turned into a the painful adjustment.

Regulations developed by the U.S. Department of Agriculture (USDA) provide for the use of four labels. Label A, “Product of the United States“ designates meat from animals born, raised and processed exclusively in the U.S.; Label B, “Product of the United States and Canada“ or “Product of Canada and the United States“ designates meat from animals born in Canada and partially raised and slaughtered in the U.S.; Label C identifies meat from animals imported for direct slaughter; And Label D identifies meat imported from another country.

U.S. Packers Halt Slaughter of Canadian Origin Pigs

“We’ve seen a series of events unfold in the last month, starting with the position that the major US packers have taken regarding Canadian hogs,“ observes Perry Mohr, the CEO of Manitoba Pork Marketing, the province’s producer operated hog marketing co-op.

Several of the major U.S. pork processors, most notably John Morrell in Sioux Falls, South Dakota have responded to the new rules by announcing they will no longer kill Canadian origin pigs and, in the case of John Morrell, effective September 30.

That has forced Canadian slaughter hogs that had been moving into the U.S. to find new homes. At the same time, many U.S. producers who had been buying Canadian weanlings for finishing and slaughter in the U.S. have stopped doing so for fear that they will not have markets for the finished hogs.

Slaughter Hog Movement South Plummets

“You’ve seen the number of butcher hogs that are going into the United States virtually dry up. You’ve seen the number of weanling pigs going into the United States decrease on a weekly basis,“ says Mohr.

“From the butcher hog perspective it’s forced those of us that were exporting hogs into the United States to find alternative markets and, quite honestly, those markets are not nearly as favourable as the ones we were shipping to in both Canada and the United States.“

David Hamblin, the marketing manager with Phoenix Agritec, agrees. “With John Morrell being so competitive over the years it hurt to lose that price. For a lot of the contract guys it was higher than even what they could get on a Maple Leaf price.“ Phoenix Agritec has been shipping primarily slaughter animals into the northern U.S. on behalf of Canadian and northern U.S. clients for about the past ten years.

Canadian Plants Handle More Hogs

Hamblin acknowledges, Canadian prices have held and, with Maple Leaf increasing capacity at Brandon, Manitoba, that plant has been able to take on a lot of those pigs.

He concedes some plants are discounting the pigs, some aren’t and, in a lot of cases, it’s a matter of freight to find some of those plants.

He adds, “There’s some pigs moving west into some of the other packers that have been short for some time. Other than that there’s some of the smaller second tier packers in the states that are taking the pigs. It’s just a matter of trying to keep the prices as competitive as possible.“

Limited Capacity Forces Manitoba Hogs to Alberta

Mohr adds, while Manitoba Pork Marketing has retained some U.S. customers, the majority of the surplus shackle space is in Alberta. “I believe there’s between 5,000 and 7,000 hogs a week from Manitoba or the middle part of Canada flowing out west to Olymel to be slaughtered.“

Canadian Weanling Producers Lose U.S. Customers

Manitoba weanling exporters have also seen their American markets dry up.

Steinbach area weanling producer Rick Bergmann explains, “Producers who once had standing agreements with weanling buyers are finding themselves without contracts right now.“

He says, “Since last March there’s been a tremendous amount of the sow base going to slaughter. In some instances, barns are being left empty for a long period of time and possibly for good. You’re seeing five year old barns, significantly sized barns, that are depopulating because of the economics.“

Bergmann estimates a minimum of 10,000 to 15,000 sows have been depopulated within the last month in Manitoba.

After examining their options, Mohr explains, one of which was to find finishing spaces and have the animals slaughtered in Canada, many have decided to empty their barns.

“When you look ahead to getting them slaughtered in Canada, there’s not any surplus capacity right now.“ He acknowledges, many remain hopeful that they will ultimately be able to re-populate and resume shipments to the U.S. or finish the pigs in Manitoba and sell them into the Canadian market place.

Bergmann adds some producers are thinking they can repopulate next year and sell the isoweans into a 2010 market. He believes that is the only option for those producers with newer built facilities because of the cost of the barns.

Saskatchewan Producers Dodge Worst Effects of COOL

The impact of COOL has been less pronounced in Saskatchewan.

“Because Saskatchewan is not a large shipper of live animals into the United States we really haven’t seen that many problems with COOL,“ says Don Hrapchak, the general manager of the SPI Marketing Group.

He notes most of the remaining producers decided some time ago to solidify their contract bases with Springhill, with Maple Leaf in Brandon or Olymel in Red Deer. I would say almost all Saskatchewan producers have long term contracts with Canadian packers so the COOL effect on those producers has been limited.“

Tight Capacity Leaves Little Margin for Plant Slow Downs

However, Hrapchak acknowledges, there are occasionally Saskatchewan market hogs available for shipment to the United States and, since that opportunity is no longer available, there will be an effect as time passes.

His concern is with the bottleneck that will be created when Canadian processing plants experience break downs or when processing slows during holidays.

“In the past we’ve been able to utilize the large slaughter capacity of the United States to market our excess hogs when ever we’ve experienced problems in western Canada. With the western Canadian packers basically processing at capacity, any hiccups will pose some major problems in trying to merchandise the hogs that we have available.“

Mohr agrees, “The real pinch for Manitoba butcher hog producers is going to come during the holiday shortened weeks, one of which we have next week with Remembrance Day. Then, if we look ahead into Christmas, we’ve got the potential for our major processors to be down almost four days during those weeks over Christmas and New Years.“

Producers Advised to Work With Canadian Processors and Stay Current

Manitoba Pork Marketing is advising producers to get as current as they possibly can.

“We can’t go into that Christmas period with any kind of a surplus inventory because it’s just going to exacerbate the situation,“ says Mohr.

Phoenix Agritec is also advising producers to strengthen their relationships with the Canadian packers.

“The success of our industry is very dependent on the success of our Canadian packing industry up here,“ Hamblin suggests. “It’s definitely looking good compared to what it was. With Maple Leaf getting their expanded double shift rolling and with Hytek building in Neepawa and kind of getting into their new role, it is looking good for our Canadian industry. And, in the last few weeks, having the dollar move down into that 80 to 85 cent range has all of a sudden placed us, as a Canadian industry, in a lot different position than we were just a month ago with a par dollar.“

Longer Term Outlook Somewhat Brighter

Despite the immediate uncertainty many there is hope that Canadian hogs will ultimately make a return to the U.S. market.

Mohr points out many on both sides of the border believe the American processors will ultimately ease their position on purchasing Canadian origin pigs, particularly next spring when supplies are typically a little bit light.

However, he acknowledges, there are others that believe, as was witnessed with the cattle industry when Canadian cattle were restricted from flowing into the United States, many packing plants closed. Some people that feel that that is a distinct possibility on the hog side of things as well. You may see some processing capacity disappear in the United States as a result of the decisions that are being made today.

Hamblin is convinced, “There still are going to be options for moving pigs to the United States. We just have to work harder to find them. The options are there, it’s just a matter of everybody from the retailers to the packers and the producers being on the same page as far as where the new labelling requirements have to be.“

2009 Offers Hope

“I think producers are looking forward to 2009,“ says Hrapchak.

“We are looking at hog prices hopefully moving into the profitable area. Feed grain prices are starting to come down. That will allow prices in the $160 to $180 range to become profitable. Most of the producers who are remaining in the business desperately need those profitable periods in order to start to regain some of the lost equity that they’ve suffered during the past two or three years.“

Hamblin expects a number of changes back and forth during the U.S. Department of Agriculture’s six month period of outreach and education.

“Realistically the number of pigs coming to market is going to have a big impact on how packers choose to deal with it. As numbers, especially out of Canada, continue to decrease packers could be in a little different situation toward the end of that six months should the number of pigs being killed come down.“