Morin canada usa pork econony jefo2016 by Jefo Marketing

2016-08-31

August 2016

Michel Morin, agr., Agricultural Economist

Pork production  Production at the farm  The structure of the US-Canada pork industry  Markets and trade  Challenges and opportunities

2016-08-31

   

Canada 9.98 million km2 36 million people 13.5 million pigs 2.7 Canadians per pig

   

USA 9.63 million km2 320 million people 68.4 million pigs 4.7 Americans per pig

And a very long border (8 891 km)

Pig Production

2016-08-31

Commodity hogs:  Similar genetics (Duroc paternal line with F1 hybrid)  Feed : Corn and soybean meal  (wheat, barley and canola meal in Western Canada)

 Slaughter at ±130 kg live ( and getting bigger)

 Types of operations  Historically = Crops and Farrow-Finish  Now, specialized producers  Farrow-to-wean (selling 6 kg piglets)  Nurseries (feeding piglets to ±30 kg)  Finishing or wean-to-finish (feeding to 130 kg)

 Breeding herd  USA : 5.98 million  Canada : 1.24 million

2016-08-31

 Number of pig farms  USA : < 68 000 (346 000 in 1986)  Canada : < 7 000 (36 000 in 1986)

 In 30 years,  Lost 80% of our farms  Inventory grew 40%  Farm size 7 times greater  Canada: from around 275 heads to 2 000 heads  USA: from around 150 heads to 1 000 heads

 Producers are getting bigger Biggest Pork Producers in Canada (number of sows owned) Company 2013 HyLife 60 000 Maple Leaf Agri-Farms 63 000 Olymel (Olysky) 41 500 ProVista Agriculture 25 000 The Progressive Group 33 500 Total 223 000 Source : Agriculture.com, 2015

2014 72 000 67 000 41 000 40 000 33 500 253 500

2015 72 000 65 000 46 500 40 000 33 500 257 000

 And production more integrated (60-65%)

2016-08-31

 Even gigantic in the US Biggest Pork Producers in the US (Number of sows owned) Company 1. Smithfield Foods 2. Triumph Foods 3. The Maschhoffs 4. Seaboard Foods 5. JBS 6. Pipestone System 7. Prestage Farms 8. Iowa Select Farms 9. Carthage System 10. AVMC Management Services Other companies (rank 11 to 25) Total sows owned by the 25 biggest Source : Agriculture.com, 2015.

2013 2014 2015 868 000 887 000 894 000 381 500 407 500 445 500 208 000 218 000 218 000 217 000 217 000 217 000 155 000 161 000 175 000 160 000 170 000 170 000 170 000 170 000 170 000 160 000 165 000 165 000 104 500 105 000 120 000 100 000 110 000 112 000 655 850 692 700 744 800 3 179 850 3 303 200 3 431 300

Top 2: more sows than Canada

Yet, there is still diversity  Between provinces and/or states  Producers  Farrow-Finish  Independant

 Niche products  Organic  Humane certified (Welfare)  Breeds

2016-08-31

Source : Interpig, 2015.

Competitiveness between Canada and the US Generally: ď&#x201A;§ Lower feed cost in the US ď&#x201A;§ Higher productivity in Canada (higher health & more productive labor) Piglets weaned /sow/year

Feed cost (25-130 kg)

Iowa (USA)

20.7

82.97 $CA

Ontario (Canada)

25.5

86.55 $CA

2015

2016-08-31

Industry Structure

Sources : Statcan & USDA, compilation CDPQ, 2016.

2016-08-31

 Bulk of production is in the Corn Belt (% of US pigs) 12 % 5%

32 % 7%

1. 2.

5,5% 3%

13 %

Iowa North Carolina Minnesota

Source : NASS, USDA, 2014.

 Pig and piglet trade between Canada and the US Manitoba

Alberta

Québec

Sask. Ontario

1.5 million

Nebraska

Iowa Miss.

1.08 million

Ind.

N.C.

Source : AAC, compilation CDPQ 2016

No tariffs on trade of hogs (or cattle)

2016-08-31

ď&#x201A;§ Weekly slaughter capacity (thousand heads) Total Canada Manitoba

Alberta 101

QuĂŠbec

122

Sask.

Ontario

485 000 Heads/week

177

Total USA 2.44 million Heads/week

215 103

632 235

159

184 260

167

Iowa = 1.3 Canada

109

Sources : National Hog Farmer 2015, Canadian Pork Council, compilation CDPQ 2015

10 biggest packers in the US and Canada (estimated capacity, 2015) Company

Plants

Heads/day

1. Smithfield

115 000

2. JBS (Swift)

89 800

3. Tyson Foods (IBP)

80 950

4. Hormel

36 800

5. Olymel

35 000

6. Triumph

21 500

7. Seaboard Farms

20 500

8. Maple Leaf

18 000

9. Indiana Packing

17 500

10. Hatfield Quality Meats

11 700

2016-08-31

Two countries, but one open border:  Trade of live animals (from Canada to the US)  More pigs produced in the US  More slaughter capacity in the US Hog prices in Canada are based on the US price

Impact of exchange rate (US$ vs C$) If US$ value

Grain prices in Canada

Pig prices in Canada

Canadian export value

High Low

A strong US$ is the preferred option for the Canadian industry

2016-08-31

Markets and Trade

2016 : Pork production = 112.0 million metric tons  Beef

: 59.2 million tons

 Chicken :

89.3 million tons

2,5 % 1,7 %

21 % 10 %

51 %

1,1 % 1,2 %

1,2 % 3%

Source : USDA, FAS, oct. 2015, compilation CDPQ

2016-08-31

 Pork consumption deteriorates in North America

Source : Kevin Grier, 2015

 Pork exports in 2016 = 7.2 million tons (6% of production)

17 % 32 %

33 %

3,5 %

4 countries = 90% of exports

Source : USDA, FAS, oct. 2015, compilation CDPQ

2016-08-31

Meat and Variety Meat Pork Export Main Destinations, 2015 United States Canada Metric tons

United States Canada 200 989 Japan 406 186 China/Hong Kong 339 056 Mexico 718 819 South Korea 167 524 Taïwan 57 763 Australia 20 278 Others 221 520 Total 2 132 135

Million $US

779 1 586 700 1 267 470 172 40 561 5 575

Metric tons

Million $CA

443 738

1 492

217 731 154 728 124 052 42 024 40 300 25 770 122 260 1 170 603

944 269 189 100 70 88 271 3 421

2015 : Exports = 25 % of US production 2015 : Exports = 65 % of Canadian production

Sources : Statcan et USMEF, compilation CDPQ, 2016

 Japan  Most lucrative market (price/kg)  Canada and US can export fresh meat

 Mexico  Most important US destination (volume)

 China  Destination with most growth potential

 USA  1st destination for Canadian pork

2016-08-31

Why both export and import at the same time?  Price and quantity  Processors (import belly, export bacon)  Grocery chains (weekly specials)

 Consumer preference  Quality (color, marbling, organic, etc.)  Cuts and seasons (summer grilling, holiday meals)

Major exporters  USA : 1st (sometimes 2nd)  Canada 3rd But for Canada  The most export dependant;  The US is both  Our greatest export market  Our greatest competitor!

2016-08-31

Challenges and Opportunities

Group housing for gestating sows  Historically, sows are kept in individual stalls.  Practice is now banned in the European Union. In Canada:  New code of practice by the pig industry (2014)  Transition to group housing  For every new barn (now)  For every pig barn (2024)

 But costly to adapt (< $30 to > $500/sow)

2016-08-31

Group housing for gestating sows - In the USA  Various states (10) have banned gestation stalls  Florida, California, Colorado, Arizona, etc.

 Requested by some restaurant chains (McDonalds, Burger King, etc.)  Some companies are making the transition :  Smithfield Foods (2017); suppliers Murphy-Brown (2022)  Cargill (2015); suppliers (2017)  Hormel (2017)

Production losses  PRRS (porcine reproductive & respiratory syndrome)  USA : 664 million $US/year  Canada : 130 million $/year  Many regional control projects underway

 Outbreak of PED (porcine epidemic diarrhea)  USA : losses >5 million piglets  Canada was able to limit the spread

2016-08-31

Trade impact  Reportable disease can have dire consequences  African Swine Fever, Foot & Mouth Disease, etc.  European pork banned from Russia (2014-?)

 North America free of major reportable diseases But diseases travel  Meat, animals, people, feed…  And we have an open border between Canada-USA

To export, there is a need to stay competitive:  Feed cost = 60% of production cost Different approaches to lower feed cost  New ingredients  DDGS (0 in 2005, now 10 to 20% of feed)

 Genetics  ↓ FCR 0.075 in 6 years (8 kg of feed, or 2,50$/pig)

 Additives  Enzymes for better digestibility (ex: protease ↓ 7-10$ economy per ton of feed)

2016-08-31

A good idea is not enough. It needs to be accepted by clients and society Additives  Ractopamin → banned in China, Russia, EU  Ractopamin-free Certification programs in Canada and the US

 Antibiotics  The use for growth promotion is a hot issue Even a good product may become a trade barrier

For an exporter, having market access is primordial  Free trade agreements (ex)  NAFTA in 1994 (Canada-Mexico-USA)  Canada-EU; USA-EU  TPP (Transpacific Partnership)

 Usually positive for pork exports  Especially when competitors are excluded

 But nationalism is on the rise (ex: Trump)

2016-08-31

For an exporter, having market access is primordial  Losing access is a quick process  Reportable diseases  Additives (ractopamin)  Politics

 Regaining market access can be a long struggle

MCOOL rule 2009-2015

Source : AAC, compilation CDPQ, 2016.

7 years legal battle at the WTO

2016-08-31

Conclusion

USA & Canada  Two markets, but strongly tied together  Open border for hog and pork trade  Canadian price based on the US price  We’re both clients and competitors

 Export oriented (especially Canada)

2016-08-31

USA & Canada  Production structure is oriented on competitiveness  Low feed cost  As many piglets as possible

 Big companies (production & slaughter)  Still many independent producers  Still some small operations

Challenges  Animal welfare

Opportunities  Niche markets

 Disease

 PRRS control

 Feed cost

 Competitiveness

 Market access

 Advantage on competitors

2016-08-31

MERCI ! mmorin@cdpq.ca