Market Comments

The Canadian livestock industry is a lot smaller today than it was 7-8 years ago, a casualty of sharply higher feed costs, disease disruptions (cattle), and the rapid increase in the value of the Canadian currency, (hence reduced competitiveness). The latest data from Statistic Canada showed that while the liquidation in the cattle and hog sector has come to an end, there is little impetus for growth in the short term. Indeed, skyrocketing feed costs in North America will likely continue to pressure producer margins, especially those of hog farmers who still depend on shipping a significant number of feeder pigs to US hog operations in the Midwest. The hog survey data for the June quarter revealed some interesting insights. As of July 1, there were 1.216 million breeding sows in Canada, 1% more than the same quarter a year ago but 0.4% lower than the previous quarter. This is an early indication of the margin squeeze and the expectation is for the breeding herd to continue to decline in the next three to four quarters as feed cost and exchange rate pressures escalate. Also important to note is that Statistics Canada revised its historical inventory numbers following the results of the 2011 Census of Agriculture. The revisions were dramatic, with the size of the breeding herd now estimated to be 7% smaller than previously thought. Between 2005 and 2010, Canadian produces removed about 25% of breeding sow capacity and the sow inventory has not changed much in the last two years. The total Canadian hog and pig inventory as of July 1, 2012 was 12.870 million head, 0.5% higher than the previous quarter and 1.5% higher than on July 1, 2011. Farrowing intentions for the next two quarters show significant contraction. Survey participants indicated that they expect farrowings in Q3 to be down 5.4% from the previous year and Q4 farrowings are expected to be down 2.4% from a year ago. As in the US, productivity improvements have increased the number of pigs saved per litter. The latest Canada hog survey data indicated 10.57 pigs saved per litter, a 2% improvement from a year ago. The increase in pigs per litter coupled with a 1% increase in the number of sows resulted in a pig crop for Q2 of 7.073 million head, 3.1% more than a year ago. In the short term, the supply of Canadian pigs coming to market will remain above year ago levels but all indications are that supplies will tighten up again in 2013 as sow numbers and farrowings decline.

Cattle inventories in Canada have declined steadily since BSE was discovered in Canada thus limiting export demand. The beef cow inventory as of July 1, 2012 was 3.958 million head, 0.1% higher than a year ago but about 27% smaller than what it was in 2005. Total cattle inventory in Canada as of July 1 was 13.520 million head, 0.1% smaller than last year. The decline in the overall inventory was largely a result of a smaller calf crop in 2011 (down 3.5% from the previous year). While there have been some moves towards herd rebuilding, the process will likely be very slow considering the depth of the breeding herd liquidation. The most recent spike in feed costs also is an impediment. Heifers held back for herd rebuilding as of July 1 were 662,200 head, 20k head or 3.5% higher than in 2011.