Report Highlights:

The cattle herd will re-consolidate in 2014, after an unexpected liquidation the year before, although inventories remain limited. Slaughter and beef production are expected to decline, while the weaker Canadian dollar is likely to support increased beef exports. The hog sector remains stable, as producers are yet reluctant to engage in a significant expansion as they continue to face financial hardships. Pork production and trade are estimated to stay flat compared to the prior year.

CATTLE:

Data published by Statistics Canada on March 5, 2014, revealed a smaller cattle herd on January 1, 2014, 110,000 head below the official USDA estimate. Unexpected sector liquidation in 2013, driven primarily by increased beef cow slaughter and exports of slaughter cows, coupled with a surge in exports of feeder cattle, explain this development. 

Canada’s beef cow herd appeared 5,000 head larger than the USDA estimate, although 30,000 head smaller compared to 2013. Despite the decline in the number of beef cows from last year, the cattle industry believes that Statistics Canada’s cow herd level at the beginning of 2014 is overestimated, given the high volumes of beef cows either killed or exported in 2013. Future data revisions are anticipated to clarify this situation which, if confirmed, would lead to an even smaller calf crop and overall herd in 2014. 

Canfax Research Services reports that the surprise liquidation from 2013, during the herd consolidation phase and before expansion, “while rare is not unheard of.” Apparently, in 1984, after five years in the consolidation phase, the Canadian herd liquidated for three years before moving into the prolonged expansion of the 1990s. At this time, the levels of heifer retention reported by Statistics Canada and expected by the industry are just enough to maintain the herd at current levels and do not indicate any signs of expansion.

Cattle prices are expected to continue to remain at historically high levels for the months to come. The underlying reason for these high animal prices is low feed costs. Both Canada and the United States enjoyed exceptional crops this past year and feed has been cheap and abundant. When looking at the impact of prices and, implicitly, feed costs, on exports of Canadian cattle, one has to keep the analysis in relative terms: as long as feed remains relatively cheaper in the United States, cattle prices there will also be relatively higher compared to Canada and be a contributing factor to the draw of cattle into that market.

Canfax Research Services reports that the price differential between Canada and the United States has deepened for slaughter cattle from a five-year average of about C$5-10/cwt to more than C$20/cwt in early 2014. The price difference is even more striking for feeder cattle: whereas the five-year average ranges between C$10-15/cwt, the price differential reached C$35/cwt in early 2014. The fact that cattle prices remain higher in the United States will continue to sustain exports from Canada, particularly of feeder cattle. 

In addition to feed costs, another factor that contributed to the wide price differential between Canada and the United States was the fact that, at the end of 2013, Canadian feedlots operated at full capacity and were not interested in acquiring more feeder cattle. While this situation is currently changing, with packers needing slaughter animals and feedlots willing to sell lighter cattle, the resulting price increase on the Canadian market will still not bring the price differential back to the historical average. Therefore, the expectation is that the current situation will continue to fuel the exports of cattle towards the United States. 

Based on the conditions described above, Post estimates that total cattle exports will reach 935,000 head in 2014, or 20,000 head above the official USDA estimate. In terms of composition of exports to the United States, feeder cattle are expected to remain at elevated levels, although slightly below the recent record from 2013. Exports of beef cows are expected to decline more substantially, given that 2013 was an un-usual year of liquidation and the herd is currently diminished. Exports of heavy bulls are anticipated to stay constant in 2014, as slaughter plants in Canada continue to refuse them. Finally, exports of slaughter cattle are also to decline, primarily because Canadian packers are expected to bid more aggressively on them in order to keep production lines running.

BEEF

Beef production is expected to decline in 2014. The new Post estimate is 1,010,000 metric tons (MT), or 10,000 MT below the USDA estimate and 25,000 MT below the anticipated production level for 2013. The major reasons for this development are explained below.

The new 2014 slaughter estimate is 2,970,000 head or 20,000 head below the official USDA forecast. Overall, this represents a 2.4 percent decline compared to 2013, primarily as a result of the fact that beef cow slaughter is expected to decline and cattle exports are anticipated to continue at elevated levels. 

Carcass weights will decline only marginally in 2014, after dropping 0.6 percent in 2013. For 2014, Post estimates that packers’ willingness to accept lighter animals in order to run production lines at capacity will be countered by anticipated good weather and pasturing conditions which will help animals take on additional weight. Additionally, an expected increase in the availability of feed grains at the beginning of the summer when growers empty their bins to prepare for the new crop, may result in a further drop in feed prices which may translate into additional pounds on animals. In the end, on average, carcass weights will not be that different in 2014 compared to 2013.

Imports of beef are currently estimated at 310,000 MT for 2014, or 5,000 MT below the USDA forecast. Despite the weaker Canadian dollar Post anticipates imports will increase compared to 2013, given overall very tight supplies of beef. At the same time, exports of beef will be well supported by the weaker currency. Post now pegs 2014 beef exports at 345,000 MT, or 20,000 MT above the USDA estimate, and nearly 4 percent larger than in 2013. That being said, Canadian beef exports remain at about half the level they once were in early to mid-2000s.

HOGS

Statistics Canada data released on March 5, 2014 revealed a national hog herd of 12,745,000 head on January 1, or 435,000 head below the USDA official estimate. However, the January 1, 2014 Canadian hog herd was 135,000 head larger than at the same time in 2013. 

The fact that the statistical data showed a smaller 2014 herd than initially anticipated is largely a consequence of a lower sow productivity reported for 2013, as evidenced by a smaller than expected pig crop. In fact, according to Statistics Canada data, sow productivity has been mildly, but steadily, declining ever since 2011. At this point, this trend, however, is not confirmed by the industry. It is hoped that further data revisions will bring more clarity into these data, but it also possible that these minor variations in productivity are just a reflection of the inherent statistical errors. Given the size of the sow herd, even very small changes in productivity result in large changes to inventories. 

The recently released Statistics Canada data also revealed a larger than anticipated sow herd, now pegged at 1,192,000 million head, or 22,000 head greater than the USDA estimate and 4,000 head greater than in 2013. This reported bigger sow herd is somewhat surprising, given that there were no indications of expansion in this sector. Hog producers continue to feel the impact of the sector contraction from five years ago and many continue to struggle financially. That being said, those producers who remained in business have enjoyed exceptionally high hog prices starting with the second half of 2013 and currently take advantage of the larger profits to consolidate their operations.

In 2014, hog loss is expected to exceed the earlier estimate, given that the Porcine Epidemic Diarrhea virus (PEDv) reached Canada at the beginning of the year. Currently, there are over 30 reported cases of PEDv on farms, the great majority of which in the province of Ontario, and few isolated cases in Manitoba, Quebec and Prince Edward Island. At this point the impact of the disease at the national scale is minor and there are no estimates regarding possible future impact. The hog industry in collaboration with the Canadian Food Inspection Agency has strengthened biosecurity measures and has tightened cleaning and disinfection requirements for trucks transporting hogs in the hope to contain the spread of the disease.

Hog exports are now estimated to total 4,850,000 head in 2014, or 70,000 head below the official USDA estimate, and 125,000 head below the 2013 level. This is a reflection of an overall lower hog supply, but also of the fact that several Canadian vertically integrated operations (from farrow to slaughter) are expected to consolidate their positions as they take advantage of low feed costs and rising pork prices. In addition, to the extent barley, the hog feed of choice in the hog exporting province of Manitoba, will become relatively cheaper than corn towards the beginning of the summer, additional growers in the province may decide to feed the animals locally, and this may become another factor that could temper hog exports to the United States.

PORK

The new hog slaughter estimate for 2014 is 20,900,000 head, or 500,000 head below the official USDA estimate, and only marginally lower than in 2013. This is a reflection of lower hog supplies, given the reduced productivity reported by Statistics Canada and discussed earlier. It is also a reflection of the fact that the hog sector remains stable, as it continues to be driven by pork exports to foreign markets which attract more than two thirds of domestic production. 

Pork production is currently estimated at 1,820,000 metric tons (MT), or 30,000 MT below the USDA forecast, and unchanged from the prior year. The slightly reduced slaughter will be compensated by mild increases in weights, as packers need every pound of pork to take advantage of a sustained global demand. 

The weaker Canadian dollar will negatively impact pork imports, now pegged at 210,000 MT, 25,000 MT below the USDA estimate and 11,000 MT below the level reached in 2013.

The same weaker currency will support pork exports at the same levels reached in 2013. Post has maintained the earlier estimate of 1,245,000 MT for 2014, the same as the USDA official forecast. While pork exports to South Korea are anticipated to further decline, other Asian markets, particularly China, are likely to compensate and absorb the balance. Similarly, exports to Russia will remain well below the record level attained in 2012, but emerging markets like Ukraine will capture a good part of those volumes