Market Preview: Canadian Feeder Pig Imports

US - In this week's US Market Preview published in National Hog Farmer's Weekly Preview, Steve R. Meyer, Ph.D. of Paragon Economics, Inc. writes about the slow downturn in Canadian feeder pig imports.
calendar icon 27 July 2010
clock icon 5 minute read

Readers will notice that our table of North American pork industry data contains #VALUE errors for imports of pigs from Canada for the week of July 10. That’s because no data were available from USDA for that week. USDA’s website says simply, “The complete data set used to compile this report is not available from APHIS. When it becomes available the report will be disseminated.”

It’s a problem that rears its head now and then, but a quick look at the weekly import chart in Figure 1 shows that the last two observations for feeder pig imports are very low. Dan Bluntzer, research director at Frontier Risk Management, discovered early last week that USDA had some questions about the feeder pig counts in those two weeks and now AMS has delayed the next week’s data. We’ll get it lined out eventually but, in the meantime, I wouldn’t read too much into those two weeks of less than 70,000 pigs coming south.

US feeders and packers have figured out how to use these pigs efficiently in the face of MCOOL-imposed challenges. Packers take “Label B” pigs only on certain days in specific plants and merchandise the pork primarily to export and foodservice markets where it is not required to carry a label. It’s amazing how economic agents adjust to new conditions if they have some freedom to do so.

Ignoring the last two observations for feeder pig imports in Figure 1, it is obvious that the downtrend has been slowing since early 2009. In spite of the difficulties imposed by MCOOL and caused by the increase in the value of the Canadian dollar, this number is not, as many warned, going to zero. It appears to be settling in the area of 80,000 per week. Michael McCain, CEO of Maple Leaf Foods, told a gathering that I attended last week in Manitoba that he expected the number to stabilise near 75,000 per week. That’s a reasonable number as well.

Much of this, of course, depends on what happens to the Canadian breeding herd (see Figure 2). It numbered 1.3038 million head as of April 1 and was almost certainly smaller on July 1. Stats Canada will publish its estimate of that number in August. While Canadian producers are again seeing some profits, albeit small ones, the herd there will likely decline on a year-on-year basis for another year. It may decline in actual numbers for a few more quarters as well. I have said 1.2 million for some time. Some think it will never get that low, while some are now saying 1.1 million. I’ll stick with my earlier idea until proven wrong.

If the Canadian herd does settle at 1.2 million, it will still be larger than at any time prior to the huge expansion that began in 1996. The reduction will continue to exert significant pressure on Canadian packers, and I suspect that at least one or, more likely, more plants will close. The number really depends on the size of the first ones that throw in the towel.

Debate on proposed rule regarding the Packers and Stockyards Act by the Grain Inspection, Packers and Stockyards Administration (GIPSA) is becoming more contentious. USDA officials, including GIPSA Administrator J. Dudley Butler, were on Capitol Hill last week for a hearing before the House Sub-Committee on Livestock, Dairy and Poultry and faced a blistering barrage of questions from members from both parties. I was in DC last week and one veteran (25 years) Congressional staff member told me that he had NEVER seen members so upset about an issue before the committee. Suffice it to say that Republicans and Democrats alike are skeptical of the wisdom of the rule and are particularly upset with some of the rule’s content that is diametrically opposed to decisions made by Congress during the debate on the 2008 Farm Bill.

It does appear that the comment period will be extended. And it should, primarily due to the completely inadequate (or nonexistent) economic impact done by USDA. Determining the probable cost of something so full of contingent liabilities will not be easy but it doesn’t appear that USDA even tried. Look for an announcement of a comment extension early this week.

Final point for this week: Government actions are rarely if ever Armageddon for an industry. MCOOL has not destroyed the pork industry on either side of the border. That does not mean that it has had no impact – it has indeed hurt Canadian producers and contributed greatly to the demise of one US packing plan and thus the loss of 1,500 jobs. This GIPSA rule, even if adopted in its current Draconian form, would not destroy the US livestock and poultry industries. Individuals and firms would adjust and adapt. BUT JUST HOW MANY OF THESE STRAWS CAN WE CONTINUE TO PILE ON THESE INDUSTRIES’ STRONG BACKS? I’m not sure what the answer is to that one but I’m confident there is a finite number beyond which costs will increase enough to price these products high enough to become luxuries for most common folk. The businesses cannot carry

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