Market Information
Canada

Quarterly Pork Report

October - December 2005

Manitoba Regional Office

Issue #28 December, 2005

1. Overview of World Situation

Tables 1 through 4 provide the latest outlook report on production, consumption and trade of pork for 2004 to 2006. The presence of avian influenza in Asia and Russia, foot and mouth disease in Brazil and export restrictions on Canadian and US beef due to bovine spongiform encephalopathy has benefited pork exports and is expected to continue into 2006. Although the Mato Grosso do Sul region of Brazil has recorded foot and mouth disease, Brazilian exports are not expected to be impacted in 2006 as this region is not a major pork producing state. Increased per capita GDP will stimulate pork consumption as consumers have more disposable income.

As shown in Table 1, China will continue to account for over 53% of world pork production in 2006 while the European Union and the US are expected to have 22% and 10% respectively of production. The substantive increases in Chinese production are directly related to efficiency gains associated with improved breeding stock (through increased imports of stock) and better feed. Canada is expected to produce slightly under 2 million tonnes in 2006 based on a 0.8% increase in production, placing it fifth in world production. US production in 2006 is projected to increase 2% above 2005 levels in comparison. World production overall could increase 2.8% to 95.2 million tonnes.

Tables 2 and 3 indicate the major exporters and importers of pork. Japan continues to be the primary importer, accounting for about 30% of total imports. Despite its dominance, both 2005 and 2006 will see declines in the volumes imported when compared to 2004. These declines in pork imports are attributable to market readjustments as US beef is expected to re-gain access to the market in late 2005 or early 2006. Brazil will continue to be the major supplier to the Russian market. Russia accounts for approximately 65% of Brazilian exports. Brazil's cheap feed supply and inexpensive resources position it well in the export market. Overall, 2006 world imports are expected to increase 1.5% from 2005 levels.

Source: Foreign Agricultural Service, USDA, Livestock and Poultry: World Markets and Trade, November, 2005.

Source: Foreign Agricultural Service, USDA, Livestock and Poultry: World Markets and Trade, November, 2005.

Source: Foreign Agricultural Service, USDA, Livestock and Poultry: World Markets and Trade, November, 2005.

In terms of exporting countries, world exports are projected to increase 1.9% to 5.1 million tonnes. US exports are projected to exceed Canadian volumes again. Canada had exported 975,000 tonnes compared to the US exports of 779,000 in 2003. This situation has completely changed with the US sales surpassing Canadian levels since 2004. US sales in 2006 are expected to increase 2.8% over 2005 levels compared to a 2.3% increase for Canadian exports. Favourable exchange rates could give US exports a competitive advantage over Canadian product. Europe continues to account for over 28% of world exports. The increase in EU exports is associated with Poland gaining Russian export approval.

Table 4 gives an overview of the top consuming countries. China accounts for over 50% of consumption. Canadian consumption is expected to increase slightly over 2% in 2006. Consumption will continue to be influenced by disease related trade distortions in the beef and poultry sectors.

Source: Foreign Agricultural Service, USDA, Livestock and Poultry: World Markets and Trade, November, 2005.

2. Overview of US Situation

2.1 US Hog Inventories

Table 5 presents the total number of hogs and pigs on farms as of September 1, 2005. Total inventory was 61.5 million head. This was unchanged from September 1, 2004 but up 1.5% from June, 2005. Market hog inventory, at 55.6 million head, also was unchanged but 1.7% higher than the last quarter.

The December to February, 2005 farrowing intentions indicate a 1% increase over the same period in 2005.

2.2 US Hog Slaughter and Projections

Commercial hog slaughter for the January to September period was 76.07 million head, relatively unchanged from 2004. Commercial pork meat production totalled 15,157 million lbs up 1% from January to September 2004. This increase in production was related to higher carcass weights (266 lbs/carcass in 2004 versus 268 lbs/carcass in 2005).

This stability in hog slaughter/pork production has been accompanied by increases in storage stock levels. Storage stocks on January 1st were 482.9 million lbs. They peaked at 563.8 million lbs on May 1st and have declined to 427.0 million lbs by October 1st. As of October 1st, these storage stocks represented a 3% higher level than 2004.

National average barrow and gilt prices for the July to September (third quarter) were US$50.51/cwt compared to US$52.09/cwt in the previous quarter and US$56.58/cwt for the same quarter in 2004.

Prices for the fourth quarter of 2005 are expected to average US$42-44/cwt with the annual average price for 2005 is expected to be US$49.38/cwt.

As shown in Table 6, preliminary US pork export numbers in 2005 are 2.729 billion lbs up 25% from 2004. Pork exports benefited from disease-related trade restrictions on US beef and poultry products imposed by several countries. Exports for 2006 are projected to be 2.765 billion lbs. Imports of pork have been around the 1.0 billion pound range. Imports have slightly declined over time. Expectations are for volumes in 2005 at 0.985 billion lbs with levels declining to 0.96 billion lbs in 2006. About 80% of pork imports are from Canada. Demand for live swine imports from Canada continues strong with 8 million head expected to be imported in 2006, about 500,000 less than 2005 levels.

Evidence across the US is suggesting that the industry in Iowa, Indiana and Kentucky are going to increase sow space by 200,000 in the next two years. It is estimated that about half of the hogs from this production increase would be marketed in late 2006. The expanded sow herd could translate into a 4% increase in production. Analysts in the US are cautioning against an expansion of the hog sector.

Source, USDA, Economic Research Service, Livestock, Dairy & Poultry Outlook, October 18, 2005

3. Canadian Situation

3.1 Canadian Hog Inventories

Table 7 indicates the October 2005 statistics related to hogs on farms in Canada. Total hog numbers were virtually the same being only 0.9% higher than the same date in 2004. Breeding herd numbers were up 0.9% while market hog inventories were up 1% overall weight categories.

Source: Statistics Canada

3.2 Canadian Hog Slaughter

Federal and provincial slaughterings in Canada are shown in Table 8. Based on the weekly data, Manitoba's slaughter was almost 5% more than in the first ten months of 2005, reflecting a continued decrease in live hog exports into the U.S. Table 9 indicates the origin of the hogs slaughtered. Manitoba and Alberta had increases in 2005 compared to 2004.

Source: Agriculture and Agri-Food Canada, Red Meat Section, weekly hog statistics, November 5, 2005.

Source: Agriculture and Agri-Food Canada, Red Meat Section, weekly hog statistics, November 5, 2005.

3.3 Canadian Exports

Table 10 indicates live hog exports for the first nine months of 2005 compared to 2004. The data indicates that volumes of weanlings, feeder and slaughter hogs have declined. This trend is expected to continue as the Canadian industry expands its slaughter/processing capacity and reduces its dependence on the US market.

Source: Statistics Canada, CATS Database

Table 11 indicates year end Canadian pork exports and exports for the first nine months of 2005 compared to 2004. The sales value for frozen pork has increased significantly (up 36%) compared to 2004. Increases in value also occurred for frozen pork (+32%), offal (+22%) and fat (+40%). Chilled pork and processed product sales declined 15% and 25%, respectively. Overall values increased 7.2% for the first nine months of 2005 compared to 2004 and tonnages were 10% higher.

Source: Statistics Canada CATS database

3.4 Market Outlook

As shown in Table 12 the George Morris Centre expects hog prices to follow traditional seasonal patterns.

Source: George Morris Centre, Canadian Pork Market Review, November 11, 2005.

4. Manitoba Situation

4.1 Manitoba Production/Inventories

As shown in Table 13 , the expansion of the hog industry in Manitoba has continued from the previous year with the greatest increase in the number of market hogs in the under 20 kg reflecting the decrease in the number of weanlings that had previously been exported into the US.

Source: Statistics Canada

4.2 Manitoba Slaughter

Manitoba hog slaughterings for January 1 to November 5, 2005 totalled 3,793,671 head--3,688,031 head in federally inspected plants and 105,640 head in provincial plants. The federal slaughterings were 5% more than the same timeframe in 2004 while provincial numbers for the same period were 8.3% less than year ago levels. Of the total number of hogs slaughtered in Manitoba, 3,451,325 head, 91% originated in Manitoba. With the closure of Best Brand foods in June and renovation/maintenance work at Maple Leaf's Winnipeg Facility, hog supplies in Manitoba are in excess of current slaughter capacity. Maple Leaf has implemented Saturday kills in response. The recent announcement of OlyWest (see Canadian news) will increase the slaughter capacity by 2.25 million in 2008--a much needed expansion to reduce dependence on live hog exports.

4.3 Manitoba Exports

Table 14 indicates Manitoba exports of live hogs and pork. Live hog exports continue to increase to the US reflecting the demand of US producers for quality weanlings. In terms of pork exports, sales for the first nine months of 2005 were $364.9 million, about 38% less than 2004 as increases in the volumes and value of frozen pork, offal and fat did not offset declines in chilled pork and processed pork products. Manitoba's exports were 37% chilled, 34% frozen and about 20% offal on a volume basis.

Source: Statistics Canada CATS database.

5. Industry News in North America

WTO Update

Talks are continuing. The US has tabled a proposal that developed countries cut tariffs between 55% and 90% with a cap on all import duties of 100%. Only 1% of the tariff lines could be classified as "sensitive". The following week the EU tabled its own take-it-or-leave-it offer with tariff cuts between 45% and 65%. Discussions continue as countries try and achieve some agreement prior to the December meeting in Hong Kong For further updates on the WTO refer to www.dfait-maeci.gc.ca/trade/trade_policy-en.asp

5.1 US News Summary

Triumph Foods up in smoke

A welding accident killed one worker and severely injured three others in an explosion that destroyed the office and cafeteria area of the Triumph Foods pork processing plant in St. Joseph, Mo. Despite the fire, company officials are anticipating that the plant will begin production in late November. The plant is expected to slaughter 1,000 hogs/hour and employ about 1,000 workers.

John Morrell & Co to expand

John Morrell & Co announced a $100 million construction project at the company's Sioux Falls pork processing facility. The plant which currently employs 3,200 workers will add a further 200 jobs with the addition of the processed foods facility. The 232,000 square foot addition will include a deli-ham manufacturing system, two pre-cooked bacon lines, one pre-cooked toppings line and a replacement sausage manufacturing facility.

Smithfield Foods and State of Iowa reach agreement

An out of court settlement was reached by Smithfield Foods and the State of Iowa with regard to the company contracting directly with Iowa farmers. The agreement ends a five-year battle over an Iowa statute that prevents meat packers from owning or controlling livestock in the state. Problems started for Smithfield when it announced it would purchase Murphy Family Farms. Smithfield had challenged the statute twice and rejected the state's interpretation. The Iowa legislature then amended the statute to make it more restrictive. Smithfield challenged the 2002 statute and had it declared unconstitutional. Smithfield indicated that rather than continue to go through a long drawn out legal process, they would prefer to reach an agreement.

NPPC welcomes Australian decision

The National Pork Producers Council welcomed the Australian court's September 16th decision to uphold the risk assessment process done by the Australia Department of Agriculture, Fisheries and Forestry. The Australian hog industry had been looking at disallowing imports of processed and frozen pork based on the existing risk assessment process. The result is that imports from Canada and the US will continue.

Tosh Farms expansion

Tosh Farms of Tennessee has announced that it is planning to build fifty new hog barns in Kentucky. The new barns will increase the state's production from the 380,000 hogs recorded in 2004 to about 525,000 hogs in three years. The state government has provided tax incentives for Tosh Farms to begin this expansion.

Mandatory price reporting to continue?

The United States Department of Agriculture must decide soon on whether or not to extend its mandatory price reporting to September, 2010. The price tag associated with the reporting system is $43 million.

Effort to ban gestation crates

A coalition of agriculture groups is joining forces to organize opposition against the Arizonans for Humane Farms (AHF) petition efforts to have the issue on the next state ballot. The AHF must collect over 122,000 signatures to place the measure on the November 2006 ballot. If approved by voters, the new law to prohibit sow gestation and veal calf stalls would take effect in 2012.

Ohio State embraces animal welfare

Ohio State University and the University of Melbourne in Australia are teaming up to use the Australian animal welfare teaching modules in the animal science curriculum at Ohio State. In total, nine teaching modules ranging from animal ethics to proper animal welfare techniques will be included in future Ohio State courses.

More space needed

Research undertaken by Agrimetrics Associates Inc of the US has concluded from historical information on weanlings per sow, and size of market hog that the US industry will require 22% more finisher space in 2015 to service the same number of sows the industry has now. Their results are based on the fact that sows are producing more feeder pigs and feeding these pigs to heavier weights. Feeder pigs per sow have improved significantly in 1995 the figure was 20.2 feeder pigs per sow. By 2005, the figure had increased to 21.15. Expectations are that by 2015, productivity will be 22.2 feeder pigs per sow. Although pigs have stayed on feed a consistent number of days over the last ten years, market weight has increased from 236.5 to 258.7 lbs per hog. By 2015, analysts are projecting hogs to average 270 lbs. The result is more finishing space per pig--8.5 sq. ft. compared to 7.25 sq. ft.

Rancher wins suit

Contrary to most legal disputes you see in the papers, an Arizona rancher has won a defamation suit against an environmental group, The Center for Biological Diversity. He claimed the group posted misleading photographs of his operation on a web site. The rancher produced his own photos to argue the posted photos exaggerated the damage. The jury in the trial awarded the farmer $600,000.

5.2 Canada News Summary

Quebec lifts moratorium

The Quebec government has announced it is lifting the moratorium imposed in 2002 on new and expanded hog production. A new inspection system will be enacted with the Department of the Environment and Sustainable Development responsible to ensure contaminants from manure do not impact the ground water. Sources indicate that the Union of Municipalities of Quebec and some environmental groups are concerned about the impact of pig farms. Some municipalities will continue to influence expansion by requiring the producer to own 50% of all the land required for spreading manure. Kevin Grier of the George Morris Centre has suggested that producers will probably expand finishing barns first as increased sow productivity has resulted in insufficient finishing space. The three-year moratorium had resulted in many Quebec operators expanding operations in Ontario. This Quebec presence in the Ontario market is expected to continue into the future.

Olymel changes

Olymel has announced that it will close its St. Hyacinthe pork processing plant effective February 10, 2006 after workers there rejected a new labour contract. The closing will impact 385 workers. However, the Princeville hog slaughter facility which closed in 2004 will resume operations at the end of October. The plant will have a capacity of 12,000 hogs per week and employ 250. The company will spend $3 million to improve and enlarge the plant. Sow slaughter could eventually be slaughtered at the plant.

Maple Leaf Foods third quarter results

Third quarter operating earnings were up 5% due to increased energy costs, low pork processing margins, high hog prices and low returns from the rendering business. The company's hog production operation had increased returns due to lower feed grain prices. Maple Leaf owned 20% of the hogs it processed in the third quarter.

Premium Brands and Olymel resolve differences

Premium Brands has agreed to purchase its fresh pork from Olymel at market-set prices. Under the conditions of Premium Brands sale to Olymel in 2001, Premium Brands was required to purchase fresh pork from Olymel under a seven-year exclusive deal. Olymel sued Premium for breach of contract.

Big Sky buys Community Pork Ventures

Big Sky Farms has acquired the assets of Community Pork Ventures increasing its number of sows from 29,000 to 41,000 head. The deal means that Big Sky could produce up to one million hogs a year making it Saskatchewan's largest producer and one of the top three in Canada. Community Pork Ventures had 13 sites in Saskatchewan and three in Manitoba.

Canadian investigation of US corn

Canada Border Services Agency (CBSA) has launched an investigation into US corn imports following a complaint from the Canadian Corn Producers which represents producers in Quebec, Ontario and Manitoba. CGSA under the Special Import Measures Act will make a preliminary determination on December 15th with a final decision made 90 days thereafter. In parallel with the CBSA investigation, the Canadian International Trade Tribunal (CITT) opened a preliminary injury inquiry to determine if there is evidence of injury to the domestic industry caused by dumping and subsidizing of imported corn. The CITT will issue its preliminary determination on November 15th followed by the reasons for its decision on November 30. If the CGSA makes a preliminary dumping finding.

Puratone Corp. purchases K-Line

Puratone Corp. announced that it has agreed to purchase K-Line Management Ltd. that owns and operates four hog barns and manages eight others for other producers. The purchase will increase Puratone's production from 600,000 to 900,000 hogs per year. Puratone also announced that it will establish a new American company-Puratone USA Inc.-to oversee the finishing of 130,000 weanling in the US. Puratone had been transporting market hogs to the US for slaughter but with the expansion has decided to ship weanlings to the US and pay American producers to finish the pigs on its behalf. The cost savings in freight costs alone is estimated to be $650,000.

OlyWest pork processing plant investment

Olymel L.P., Hytek Ltd (Canada's second largest producer) and Big Sky Farms Inc (Saskatchewan's largest producer and Canada's third largest producer) have announced that they will join forces to create a partnership called OlyWest. The partnership will build a $200 million slaughter/processing plant in Winnipeg, creating 1,100 new jobs. The plant will have a capacity of 2.25 million hogs/yr over two shifts. In addition, the partnership will own the Red Deer plant which is currently being expanded to process 4.5 million/hogs/yr.

6. Documents/Events/Web Sites

6.1 Documents and Events

For the latest market reports and listing of events, please refer to AAFC's website at:

ats.agr.ca/info/mkinfo-e.htm

ats.agr.ca/events/events-e.htm

This site is updated monthly.

6.2 Web Sites

There tends to be some confusion as to what Manitoba Agriculture Food and Rural Initiatives produces in terms of information and data and what Agriculture and Agri-Food Canada prepares. Manitoba Agriculture Food and Rural Initiatives has on its web site production economics (cost of production information), livestock sector profiles, trade information and the Weekly Market Report. Very useful information for both the generalist as well as the specialist!

Manitoba Agriculture Food and Rural Initiatives
www.gov.mb.ca/agriculture/index.shtml

Agriculture Canada-Red Meat Section
www.agr.ca/redmeat

Other web sites of value are:

The Canadian Swine Exporters Association at
www.canadianswine.com/

Manitoba Pork at
www.manitobapork.com

Canada Pork International at
www.canadapork.com

Canada Pork Council at
www.cpc-ccp.com

The US National Pork Producers site is
www.nppc.org/

Good general website to connect to all universities, governments and industry associations is at: www.umanitoba.ca/afs/animal_science/links.html

For the latest on Foot and Mouth Disease, go to the Canadian Food Inspection Agency site at:
www.cfia-acia.agr.ca/english/toce.shtml

Export information can be found at the following sites:

ats.agr.ca

www.itcan-cican.gc.ca/menu-en.asp

exportsource.gc.ca

The staff of the Manitoba Regional office would like to thank Patti Negrave of the Red Meat Section of Agriculture and Agri-Food Canada for her comments and suggestions provided to the author prior to the document’s final release.

Should you know of a person, company or other organization who would like to subscribe to this report (no charge), please have them contact:

Heather Gregory
Agriculture and Agri-Food Canada
402-303 Main Street
Winnipeg, Manitoba R3C 3G7
Telephone (204) 984-6204
Facsimile (204) 983-4583
Email: gregoryh@agr.gc.ca