Highlights

Post continues to forecast marginal growth in the cattle sector for 2017. Cattle slaughter is forecast to increase, while total cattle export growth is expected to be flat. Beef exports are expected to increase two percent to 450,000 MT, strongly supported by the depreciated Canadian dollar. The hog sector continues on its path of moderate growth and hog exports are expected to increase. Pork production continues to hover around record volume, and pork exports are expected to settle slightly from the record level reached in 2016.

CATTLE and BEEF

2015

2016

2017

Animal Numbers

USDA

Official Data

NEW Post

Data

USDA

Official Data

NEW Post

Estimates

USDA

Official Data

NEW Post

Forecast

CATTLE ('000 head)

Total Cattle Beg. Stks

11,925

11,925

11,995

12,035

12,1

12,065

Dairy Cows Beg. Stocks

954

954

959

959

960

960

Beef Cows Beg. Stocks

3,831

3,831

3,827

3,827

3,835

3,825

Production (Calf Crop)

4,298

4,328

4,41

4,35

4,475

4,365

Total Imports

36

36

25

33

25

35

Total Supply

16,259

16,289

16,43

16,418

16,6

16,465

Total Exports

832

832

760

766

800

770

Cow Slaughter

380

380

400

423

390

430

Other Slaughter

223

223

220

223

225

225

Other Slaughter

2,309

2,309

2,43

2,42

2,485

2,485

Total Slaughter

2,912

2,912

3,05

3,066

3,1

3,14

Loss

520

510

520

521

525

525

Ending Inventories

11,995

12,035

12,1

12,065

12,175

12,03

Total Distribution

16,259

16,289

16,43

16,418

16,6

16,465


The cattle sector has been anticipating an expansion phase for several years; however, growth is once again not in the forecast for 2017. Statistics Canada’s January 1 cattle herd data shows meager growth of less than one percent over the same time last year, leaving the inventory 19.2% below the peak level of January 2005. Post forecasts no growth by the end of 2017. Cow slaughter is expected to increase by 1.7 percent (7,000 head), and cow exports are forecast to increase by less than one percent (4,000 head), while inventory of beef heifers is expected to grow only minimally. As a result, there will be no prospects for any meaningful growth in the herd in 2017. For 2017, post forecasts feeder cattle exports to fall another 11,000 head due to the U.S. expansion in herds and the sustained competitiveness of Canadian feedlots which allows them to bid aggressively for feeder cattle.

Post forecasts a 12,000 head increase in slaughter cattle exports, remaining below the five-year average, as a weak dollar keeps U.S. demand afloat. The Canadian dollar is expected to weaken as the U.S. Federal Reserve prepares to tighten interest rates throughout 2017 and the Bank of Canada sits put. However, energy prices, which are anticipated to increase, may underpin the Canadian dollar’s value.

In 2016, every category of cattle experienced export levels well below their respective five-year averages, due to rapid expansion in the beef cow herd in the U.S. Live cattle exports fell 8 percent (66,000 head), which was less of a decline than previously expected due to growth in U.S. demand for fed cattle -- export growth of slaughter steers and slaughter heifers to the U.S. was up 42 percent (98,000 head). Feeder cattle exports to the U.S. fell 41 percent (139,000 head) as the result of a strong feeder basis (the difference between the Canadian cash market and the U.S. futures price). A strong basis means that more feeder cattle were retained in Canada and less were exported.

In 2016, a bovine tuberculosis investigation in Alberta and Saskatchewan led to 28,000 cattle being quarantined and 10,000 head destroyed, as of Feb 14th. About 50 ranches, mostly in Alberta with a few in western Saskatchewan, were affected by the quarantine. This is not expected to have a significant impact on the 2017 outlook.

In 2017, Post now forecasts total cattle slaughter at 3,140,000 head or 2.4 percent above the 2016 level of 3,066,000. Calf slaughter is expected to experience flat growth, while cow slaughter is expected to grow nearly two percent. The reason for the growth in cattle slaughter has not changed since 2 months overall strength in beef demand and improved profitability in the beef packing sector has resulted in sustained contracts with feedlots and the need to keep the slaughter facilities running. Post’s beef production forecast for 2017 is 1,160,000 metric tons (MT), an annual growth of 2.6 percent, after an estimated 8 percent increase in 2016 that brought the production level to 1,130,000 MT. In 2017, the slower growth of beef production is expected as a result of smaller carcass weights, partly caused by lower feed quality due to excess moisture during fall harvest.

The year 2017 is widely expected to be a stabilizing year in terms of carcass weights after experiencing a couple years of big jumps, in part because of cheaper feed. Average monthly steer carcass weights increased 31lbs and 28lbs in the years 2015 and 2016, respectively. Post is forecasting a modest decrease in weights from the record highs observed in 2016.

In 2017, beef exports are expected to increase 2 percent to 450,000 MT, strongly supported by the depreciated Canadian dollar. Beef imports are forecast to fall nearly 2 percent in 2017 to 250,000 MT, after falling nearly 9 percent to 254,016 MT in 2016. The decline coincides with flat growth of per capita consumption.

In 2016, beef exports increased 11 percent to 440,878 MT, above the five-year average of 373,787. The United States remains by far the number one export destination, with 79 percent of the export market share. Beef exports to the Asian markets of Hong Kong, China, South Korea and Japan fell 6.2 percent to 67,091 MT in 2016 after reaching a record high of 71,517 MT in 2015.

HOGS and PORK


CANADA

2015

2016

2017

Animal Numbers

USDA Official

NEW Post

USDA Official

NEW Post

USDA Official

NEW Post

SWINE ('000 head)

Data

Data

Data

Estimates

Data

Forecast

Total Beginning Stocks

13,15

13,18

13,24

13,51

13,41

13,725

Sow Beginning Stocks

1,197

1,201

1,217

1,213

1,225

1,228

Production (Pig Crop)

28,623

28,862

29,1

28,718

29,4

28,95

Total Imports

6

6

5

3

5

5

Total Supply

41,779

42,048

42,345

42,231

42,815

42,68

Total Exports

5,776

5,776

5,85

5,672

5,9

5,75

Total Slaughter

21,348

21,348

21,65

21,42

21,85

21,8

Loss

1,415

1,414

1,435

1,414

1,44

1,41

Ending Inventories

13,24

13,51

13,41

13,725

13,625

13,72

Total Distribution

41,779

42,048

42,345

42,231

42,815

42,68


Hog production has experienced modest growth since 2015 and is forecast to continue on this path into 2017. Post is forecasting the 2017 pig crop to grow nearly one percent over the previous year, or 232,000 head to a level of 29 million head. Several conditions in the Canadian Prairies are favorable to an expansion in hog production: the slaughter capacity is under-utilized, the Canadian dollar is likely to remain weak vis-à-vis the U.S. dollar compared to the levels it reached a few years ago, lending conditions have improved in some areas, and regulatory building code burdens have lessened in Manitoba. However, a more substantial growth will not occur until after 2017 due to the slow nature of investment expansions, the currently low Canadian hog prices relative to prices three years ago, and the increases in U.S. pork supplies.

Sow inventories at January 1, 2017 were 1,228,000 head, or 1.2 percent larger than on the same date in 2016. This comes after a decline of 0.5 percent in 2016.

Post now forecasts exports of live hogs at 5,750,000 head in 2017, up 1.4 percent from the level reached in 2016. The majority of growth continues to come from the export of feeder hogs to meet U.S. demand.


CANADA

2015

2016

2017

Meat swine

USDA

NEW Post

USDA

NEW Post

USDA

NEW Post

Official Data

Data

Official Data

Estimates

Official Data

Forecast

Slaughter (Reference)

21,348

21,348

21,65

21,42

21,85

21,8

Beginning Stocks

77

77

71

71

50

66

Production

1,899

1,899

1,975

1,955

1,98

1,95

Total Imports

216

216

210

215

215

215

Total Supply

2,192

2,192

2,256

2,241

2,245

2,231

Total Exports

1,239

1,239

1,35

1,319

1,3

1,31

Human Dom. Consumption

882

882

856

850

895

850

Total Dom. Consumption

882

882

856

856

895

855

Ending Stocks

71

71

50

66

50

66

Total Distribution

2,192

2,192

2,256

2,241

2,245

2,231


In 2017, Post forecasts hog slaughter to increase 1.8 percent to 21.8 million head. Pork production in 2017 is now expected to remain nearly flat at 1,950,000 MT as both growth in demand and growth in hog weights remains flat.

Growth of domestic pork consumption in 2017 is expected to remain flat and the majority of pork production will continue to go to exports. In the previous year, nearly 70 percent of total pork production was exported. In 2016, exports of pork grew faster than expected at more than six percent. Of those exports, about 24 percent went to China, compared to 9 percent the previous year. Exports to China drew strength from a high level of demand and a fall in pork production in that country.

In 2017, Post forecasts a decline in exports of nearly 1.5 percent to 1.3 MMT as increased U.S. production continues to meet demand overseas, and as demand from China is expected to fall due to increased production.

At 216,000 MT, growth in pork imports in 2017 are expected to continue to be inhibited by the weak Canadian dollar and depressed domestic demand. The United States continues to supply over 90 percent of this volume.

MARKET ACCESS

Since 1month, increased market access was achieved as bans on Canadian beef, in whole or in part, was lifted by China, Mexico and Taiwan.

On July 8, 2016 the Government of Canada announced Taiwan will once again allow Canadian beef from cattle under-30-months of age (UTM) from Canada. Taiwan had imposed a temporary suspension of Canadian beef imports in February 2015, following Canada’s last case of Bovine Spongiform Encephalopathy (BSE) earlier that month. In terms of volume, Taiwan was Canada’s sixth largest market in 2014, and took 0.6 percent of Canadian beef exports.

On September 22, 2016, the Canadian government announced that China will begin to allow bone-in Canadian beef from cattle in the UTM category. China closed to Canadian beef in May 2003 when Canada discovered its first domestic case of BSE. As Canadian beef access to China has expanded, so has Canada’s export performance.

On October 1st, 2016, Mexico fully re-opened to Canadian beef. Mexico closed to Canadian beef in May 2003 when Canada discovered its first domestic case of bovine spongiform encephalopathy (BSE). Mexico re-opened to beef from UTM cattle later that year, but remained closed to beef from cattle over-30-months (OTM) and some UTM offal. Mexico has been Canada’s third largest export market the past three years. From 2011 to 2015, Canada averaged 24,032 MT in annual beef exports to Mexico.

CETA

The Canada-European Union (EU) Comprehensive Economic and Trade Agreement (CETA) is a free trade agreement that covers nearly all Canada-EU trade, including trade in livestock and livestock products. The European Parliament voted in favor of CETA on 15 February 2017. Bill C-30, the implementing legislation for the CETA agreement in Canada, is still under review. Under current procedural timelines required by both parties, the expected plausible CETA implementation date is late spring 2017 - June 1st.

Meat:The EU will receive unlimited duty-free access to the Canadian market for beef and pork.

Canada is gaining duty-free access for beef to the European market through tariff rate quotas (TRQs) totaling close to 50,000 MT (carcass weight equivalent (CWE)). Part of this quota comes from shifting Canada’s existing 3,200 MT (product weight basis, or 4,160 MT in CWE) share in the EU’s MFN High Quality Beef quota stemming from the hormones case to a country-specific quota. In addition, Canadian beef will also receive duty-free, in-quota access under the existing 11,500 MT (product weight basis, or 14,950 MT in CWE) Hilton quota that Canada shares with the United States. Only beef from cattle born and raised in Canada under the hormone free protocol qualifies. U.S. exporters will continue to be charged the current 20 percent tariff on this quota. Canada further receives duty-free access for 3,000 MT of bison and 75,000 MT of pork, both volumes in carcass weight equivalent. All TRQs are gradually implemented over a six-year time period. Only pork from hogs born and raised in Canada under the ractopamine free protocol qualifies.

Despite this market access, the EU has yet to recognize Canada’s federal red meat inspection system, specifically the use of certain anti-microbial carcass rinses in Canadian meat packing plants. Without these approvals, Canadian red meat could not be exported to the EU. While some progress has been made so far with Europe’s approval of lactic acid as an anti-microbial carcass wash, discussions continue on the approval of citric acid and peroxyacetic acid.