Canada: Hog Markets23 November 2012
CANADA - In my last commentary six weeks ago, I discussed liquidation in Canada. Then I suggested the potential for 100,000 sows to exit Canada, writes Bob Fraser, Sales & Service, Genesus Ontario.
Jim Long added a 100,000 to 150,000 from the US stating that Canada and the US combined would be down 200 to 250,000 sows January 1st 2013 from July 1st 2012. I started the commentary by stating the following “Those of you who are regular readers of the Genesus Global Market Report will know that all hog producing areas around the world are being battered by high grain prices and perhaps as challenging, extremely volatile pricing with daily swings matching what use to be close to annual swings. Then some areas have the double barrel of depressed hog prices to go along with the high grain prices. Canada is unfortunately firmly in this latter category.” I don’t suggest we have the scope or range of USDA but in their Livestock & Poultry: World Markets and Trade, October 2012,Pork and Swine: 2013 Forecast Overview they seem to concur with a nice overview of the world very consistent with our “on the ground” view.
Direct Excerpts from USDA Livestock & Poultry: World Markets and Trade, October 2012, www.fas.usda.gov Pork and Swine: 2013 Forecast Overview
World Pork Production Virtually Flat as High Feed Costs Temper Growth. Global production is forecast nominally higher to a record 104.7 million tons. Rising feed costs, which shrink profit margins, will only be partially offset by improving efficiencies and intervening government programs in some countries.
China, accounting for nearly half of world production, is forecast 1 percent higher to a record 52.0 million tons. The anemic growth is largely attributed to weaker consumer demand resulting from relatively slow economic growth, which, squeezed by rising feed costs, has tightened producer margins. Poor hog prices in 2012 slowed expansion of swine production facilities and further encouraged small-scale producers to exit the industry. This is expected to result in nominally lower breeding stock in 2013 and only a slight growth in hogs available for slaughter. However, production efficiencies continue to improve as large and modern farms expand at a faster pace than the exit of backyard operations. The government also continues to support the pork industry through productive sow subsidies, boosting breeding stock imports to record levels, and occasional pork purchases in an effort to support prices.
Brazil’s production is expected to grow 2 percent, to a record 3.3 million tons, supported mostly by strong international demand and producer optimism for continued recovery in export markets. However, a major concern for hog producers is the recent increase in feed grain prices, which could squeeze margins. The government has already intervened in the market with subsidized corn auctions to protect the industry, extended deadlines for credit payment, and temporarily suspended state taxes.
Russia is expected to increase production by 1 percent to 2.1 million tons, although higher feed grain prices are expected to constrain expansion. Large farms are increasing production through economies of size and scale, supported by government programs. However, small private farms, many in regions affected by outbreaks of African Swine Fever, have been forced to exit the industry.
EU production is expected to ease by 1 percent to 22.6 million tons as the industry copes with rising feed costs and stringent EU animal husbandry requirements. These requirements are resulting in a restructuring of the industry, with the most inefficient commercial farms exiting production. The pig crop is expected to remain constant, while higher feed costs cause lighter slaughter weights.
United States is forecast down 1 percent to 10.4 million tons as high feed costs are expected to dampen production through reductions in farrowing and lighter slaughter weights as producers attempt to minimize feed costs. Only modest reductions to the breeding stock are forecast, leaving swine producers prepared to accelerate pig production in the latter part of 2013, when the feed grain outlook is expected to be better.
Canada’s production is lowered 1 percent to 1.8 million tons as high feed costs and reduced demand for feeder hogs in the United States are expected to adversely impact the recovery in the hog sector, which began in early 2012. Faced with higher input costs and financial difficulties, some smaller producers are expected to liquidate inventories beginning late 2012 and into 2013, resulting in a smaller pig crop and slaughter in 2013. Slaughter weights will reflect producers’ attempts to mitigate feed costs.
Japan’s output is projected down 1 percent to 1.3 million tons as producer margins are negatively impacted by high feed costs coupled with low pork prices. Reduced breeding stock leads to a smaller pig crop, while rising feed costs push producers to slaughter at lighter weights. Weak consumer demand caused by slow income growth is expected to pressure prices.
Mexico’s production is expected to fall 1 percent to 1.2 million tons as rising feed costs are expected to result in lower slaughter weights despite government support. Hog producers continue to improve efficiency through the incorporation of new breeding lines that are better able to adapt to the Mexican production system and enhanced farm management techniques, mitigating the decline in sow numbers.
South Korea is forecast 2 percent lower to 1.1 million tons as producer margins are squeezed by record high feed grain prices. Other factors dampening production are regulations for hog operations including provincial laws designating areas restricted from livestock production, animal space requirements, stricter requirements for manure disposal, FMD vaccination requirements, and traceability.
So many countries in the world are looking at less and we believe as usually happens in a decline it often ends up being greater than predicted. However less is already translating into more for producers and particularly SEW producers. Last commentary I said “I expect we have opportunity to touch $50 early weans before year end with good potential beyond that in the New Year”. Cash USDA early weans averaged $47.58 last week, 8 weeks ago early weans $8 market is coming. Small pig prices are the canary in the coalmine for the swine industry. Forewarning the future. Liquidation has cut pig supply; prices will push to $60 soon for early weans.
If we take a look at the OMAFRA Weekly Hog Market Facts compiled by John Bancroft, Market Strategies Program Lead, Stratford OMAFRA email@example.com we see some tempering of estimated margin after feeder pig and feed for the last five weeks from –($30.66)to –($19.69). So slight relief but the type of bleeding that is most likely to result in continued liquidation.
For the last couple of commentaries I have suggested that crops here looked to have opportunity to be average to above average. Now with beans (soys & edibles) virtually complete, winter wheat planted and well up and corn harvest 80% plus complete Ontario appears to on balance to have been well blessed. Certainly if you missed most if not all rains the year has been disappointing but I have heard of corn yields from 140 all the way to 250 bushel per acre, with a surprising number towards the higher end. What the life science companies have done with corn genetics is nothing short of amazing. However Genesus has made comparable gains adding a quarter of pig per litter every year on average for the last ten years. You wouldn’t settle for seed corn that is only going to give you 100 bushels per acre why settle for a 10.5 born alive. Now as the market turns is the time more than ever to look to superior genetics.
My crystal ball is certainly no clearer than anyone else’s in these tumultuous times. However I will claim a small win in my early wean prediction with I believe more to come at least well into March. Also as always early weans lead the parade of feeder pigs and market hogs to higher prices. I have had many producers suggest the present SEW price makes no sense given present market hog price and profitability. True enough but one universal is finishers hate empty barns and those with corn and a inclination to that model are going to feed it. Also fair to say they’re not paying these prices for early weans because there is so many of them around. This market is going to run and as always less will be more!
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