Tug of war is on in Canada's hog sector

The Canadian hog sector is seeing a bit of a tug of war between competing factors heading into the new year, with support from the rising United States slaughter capacity tempered by the uncertainty of the North American Free Trade Agreement negotiations.

Over the past few months, three new slaughter plants have come online in the U.S., with additional capacity also in the works. U.S. packers are killing 15,000 more hogs a day than they were at the same time a year ago, with new records becoming routine. That increased capacity has shifted the dynamic of the cash market, and created a much more competitive environment.

Record highs

Before this year, the record U.S. daily hog slaughter had been just under 450,000 heads. However, that daily slaughter has topped 460,000 on a number of occasions in recent months.

Canadian cash prices compiled by Agriculture and Agri-Food Canada range from about C$149 per 100 kilograms in Saskatchewan to as high as C$186 per 100 kilograms in Ontario. Prices across the country are up by anywhere from 22 per cent to as much as 44 per cent from the same time a year ago.

The increased demand and prices mean that packer margins are down by about 50 per cent from where they were last year, with the buyers fighting over a pie that has not grown to the same extent.

The hog supply is running about two per cent higher than a year ago, but expectations were for a four per cent increase. That moderating of hog supply is positive for prices nearby.

However, on the demand side, there’s a growing concern about exports out of the U.S., with export market struggling compared to the domestic interest.

Pork versus chicken and beef

Pork appears to be gaining ground against chicken and beef according to some metrics, with improving U.S. economic conditions generally translating into increased meat demand overall.

The pork sector is integrated across Canada, the U.S., and Mexico, which makes the ongoing NAFTA negotiations of particular importance. Concern over a favourable NAFTA deal is starting to creep into the more deferred futures, with potential for any shift or end to the agreement.

Demand for pork from Mexico could be impacted. Currently, Canada is a major hog exporter to the U.S, and the U.S., in turn, moves pork to Mexico. Any trade disagreements between the U.S. and Mexico could lead to retaliatory measures.

The pork sector is integrated across Canada, the U.S., and Mexico, which makes the ongoing NAFTA negotiations of particular importance

As well, Canadian hog prices are based directly off the U.S. market, with anything that happens there translating directly to Canada with the exchange rate on top. Tariffs or other measures on Mexico’s part would lead to lower prices for Canadian hog producers. 

 

Canadian numbers

Looking at the Canadian numbers, hog exports to the U.S. are actually running 1.8 per cent behind the year ago pace, with 4.64 million hogs crossing south over the border as of Nov. 4, according to Agriculture and Agri-Food Canada data. The domestic slaughter pace, meanwhile, is running 2.2 per cent ahead of the year ago, with 17.90 million slaughtered as of Nov. 11. Total Canadian pork exports are up 4.7 per cent on a volume basis and 7.5 per cent on a dollar basis. 

Bottom line

Canadian hog prices are up over last year and U.S. hog slaughter capacity is also high. The industry, however, is watching trade talks, and hoping for a satisfactory resolution. 

Phil Franz-Warkentin, of Commodity News Service (CNS) Canada covers agricultural markets for a number of Western Canadian and international publications. Email pfranzwarkentin@cnscanada.ca for more information.