Canada- Livestock and Products Semi-annual 2013

An Expert's View about Agriculture and Animal Husbandry in Canada

Posted on: 21 Mar 2013

The erosion of Canada's feed cost advantage, the closure of a cow cull plant and developments at a major beef packer will significantly drive cattle exports up.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 03/01/2013 GAIN Report Number: CA13012 Canada Livestock and Products Semi-annual 2013 Approved By: Robin Gray Prepared By: Mihai Lupescu Report Highlights: The erosion of Canada's feed cost advantage, the closure of a cow cull plant and developments at a major beef packer will significantly drive cattle exports up. Slaughter and beef production will likely reach lowest levels in 15 years, as will beef exports. The hog sector weathered high feed costs better than expected. Hog exports are revised higher, and so are pork production and exports Canada – Livestock Semi-annual – March 2013 Due to exceptional circumstances, Statistics Canada decided to postpone its release of Cattle and Hog Statistics by two weeks. The new release day is March 6, 2013. Therefore, a number of indicators in this report, such as inventories or slaughter, remain as estimates, whereas normally we would have reported official data. Readers are encouraged to check Statistics Canada website after March 6, 2013 to get the most recent official data. In 2011, Canada conducted an Agricultural Census. Data from this census is now incorporated into official livestock statistics. Readers are urged to use caution when comparing indicators included in recent reports (and based on new census data) with the same indicators included in older reports (based on data prior to census). The two sets of data are statistically different and therefore not directly comparable. The temporary closure of the XL Foods slaughter plant in the fall of 2012 (following an E. coli outbreak) had a significant impact on cattle trade and beef production and trade. Readers should be aware that 2012 increases in cattle exports and beef imports, and decreases in cattle slaughter and beef exports can be attributed, to a great extent, to the temporary closure of that plant. 2 | P a g e Canada – Livestock Semi-annual – March 2013 CATTLE AND BEEF NOTE: "NEW Post" data reflect author's assessments and are NOT official USDA data CANADA 2011 2012 2013 Animal Numbers USDA NEW Post USDA NEW Post USDA NEW Post CATTLE ('000 head) Official Data Data Official Data Estimates Official Data Forecast Total Cattle Beg. Stks 12,155 12,155 12,215 12,215 12,545 12,380 Dairy Cows Beg. Stocks 966 966 959 959 955 955 Beef Cows Beg. Stocks 4,046 4,046 3,998 3,998 4,020 4,020 Production (Calf Crop) 4,599 4,599 4,509 4,509 4,530 4,475 Total Imports 73 73 65 56 65 55 Total Supply 16,827 16,827 16,789 16,780 17,140 16,910 Total Exports 696 696 725 825 700 875 Cow Slaughter 535 535 490 450 465 400 Calf Slaughter 293 293 275 275 275 275 Other Slaughter 2,563 2,563 2,235 2,325 2,245 2,225 Total Slaughter 3,391 3,391 3,000 3,050 2,985 2,900 Loss 525 525 519 525 505 525 Ending Inventories 12,215 12,215 12,545 12,380 12,950 12,610 Total Distribution 16,827 16,827 16,789 16,780 17,140 16,910 NOTE: "NEW Post" data reflect author's assessments and are NOT official USDA data CANADA 2011 2012 2013 Meat USDA NEW Post USDA NEW Post USDA NEW Post BEEF and VEAL Official Data Data Official Data Estimates Official Data Forecast Slaughter (Reference) 3,391 3,391 3,000 3,050 2,985 2,900 Beginning Stocks 30 30 31 31 30 60 Production 1,154 1,154 1,060 1,075 1,055 1,025 Total Imports 282 282 285 301 290 315 Total Supply 1,466 1,466 1,376 1,407 1,375 1,400 Total Exports 426 426 395 335 415 340 Total Dom. Consumption 1,009 1,009 951 1,012 930 1,015 Ending Stocks 31 31 30 60 30 45 Total Distribution 1,466 1,466 1,376 1,407 1,375 1,400 In this report, Post's revised data differ from most of the official USDA cattle and beef estimates for 2013, in order to reflect various changes in market conditions observed over the past six months. Some of the major factors that triggered these forecast revisions include: the continued impact of the changes that took place at the XL Foods beef plant in Brooks, Alberta, following the detection of E. coli O157:H7 back in September 2012; a revision in calf crop estimates for 2013; the continued erosion of the feed cost advantage that Canada enjoyed over the past couple of years. Discussions with the Canadian cattle sector led Post to revise downward the 2013 calf crop estimate to 4,475,000 head. This number is 55,000 head lower than the official USDA estimate. There are 3 | P a g e Canada – Livestock Semi-annual – March 2013 suspicions that, despite de 2011 agriculture census, Statistics Canada calf production estimates remain somewhat overvalued. The new post revision brings this indicator more in line with the beef cow productivity levels observed over the past several years. Post revised upward total cattle exports to 875,000 head, 175,000 head higher than the official USDA estimate. Several factors are at the basis of this revised forecast. First, the sector continues to feel the impact of the E. coli outbreak at the XL Foods beef plant. This plant is responsible for roughly one-third of the total Canadian slaughter. Its license to operate was temporarily suspended by the Canadian Food Inspection Agency (CFIA) on September 27, 2012. The plant was allowed to resume operations on October 23, under enhanced CFIA oversight. The enhanced oversight lasted until January 14, 2013, when the plant resumed operations under normal CFIA oversight. Here is the complete timeline of events for this E. coli outbreak. The plant was not allowed to export beef and beef products to the United States from September 13 to December 8, 2012. During this period, the plant changed ownership: JBS is now the new owner of XL Foods. At the time of reporting, JBS has not aggressively procured Canadian cattle. At the same time, the company has a beef plant in northern Utah which also procures cattle from Canada. JBS's decisions in the coming months will impact on the number of cattle being exported to the United States. In addition, before the E. coli outbreak, XL Foods slaughtered bulls. Slaughter ceased in September 2012 when the plant's operations stopped. To date, no decision to resume the bull cull was made. As a consequence, Post estimates that in 2013 up to 25,000 bulls could be exported to the United States for slaughter. A second development, which impacts cattle exports in 2013, was the closure, in May 2012, of the Levinoff-Colbex beef cow slaughter facility at St.Cyrille-de-Wendover in Quebec. That plant processed most of the beef cows in eastern Canada. Post estimates that in 2013 up to 75,000 cows could be exported to the United States for slaughter because of this plant closure. Finally, the driving force behind the increased cattle export estimate for 2013 is the erosion of the feed cost advantage that Canada enjoyed for the past couple years. Feed prices in Canada have slowly aligned to the feed price levels in the United States, and there are indications that crop producers are taking advantage of this by increasing feed exports. This trend, coupled with the expectation of a regular crop year in the United States will result in more cattle being exported south of the border for feeding and/or finishing. This category of cattle comprises the bulk of Post's revised cattle export figure for 2013. 4 | P a g e Canada – Livestock Semi-annual – March 2013 Source: Global Trade Atlas With fewer cattle available in the country, the slaughter forecast was revised downward by 85,000 head to 2,900,000 head. After experiencing an average increase of almost 30 pounds in 2012, carcass weights are expected to remain stable in 2013. With this assumption, and given lower slaughter, Post adjusted downward Canada's beef production by 30,000 MT to 1,025,000 MT. Beef supplies will remain very tight, and are likely to hit record low levels, possibly not seen in more than 15 years. Source: Global Trade Atlas / *Post estimate 5 | P a g e Canada – Livestock Semi-annual – March 2013 Given the beef production outlook presented above, trade will be impacted correspondingly. Post revised upward Canadian beef imports by 25,000 MT to 315,000 MT while, at the same time, revised downward beef exports by 75,000 MT to 340,000 MT. Japan will be a market with potential export gains, given the recent decisions to remove the 21 months age restriction for cattle and to allow imports of beef coming from cattle under 30 months of age. However, as the supplies of beef remain limited, increased exports to Japan will have to come from reduced exports to other markets. CANADA: Total Beef Imports (Quantity in metric tons, CWE*) 1995 2000 2005 2008 2009 2010 2011 2012 World 268,309 290,280 151,000 230,009 247,032 243,443 281,928 301,316 United States 146,221 128,553 60,360 171,226 163,796 175,237 220,438 228,607 New Zealand 60,192 29,602 42,265 30,866 42,146 31,576 34,351 29,514 Australia 56,038 55,268 11,395 13,173 16,955 11,794 13,608 21,422 Uruguay 157 34,493 27,144 6,832 16,803 15,734 8,492 15,677 Brazil 2,085 4,125 7,383 5,764 5,663 7,415 4,195 4,702 Argentina 3,439 38,168 2,315 2,061 1,603 1,625 824 1,309 All other 177 71 138 87 66 62 20 85 coun tries Import Market Shares United States 54.5% 44.3% 40.0% 74.4% 66.3% 72.0% 78.2% 75.9% New Zealand 22.4% 10.2% 28.0% 13.4% 17.1% 13.0% 12.2% 9.8% Australia 20.9% 19.0% 7.5% 5.7% 6.9% 4.8% 4.8% 7.1% Uruguay 0.1% 11.9% 18.0% 3.0% 6.8% 6.5% 3.0% 5.2% Brazil 0.8% 1.4% 4.9% 2.5% 2.3% 3.0% 1.5% 1.6% Source: Global Trade Atlas / *Conversion to carcass weight equivalent (CWE) at 1.4 for fresh, chilled and frozen meat, and at 1.79 for salted and processed mea t CANADA: Total Beef Exports (Quantity in metric tons, CWE*) 1995 2000 2005 2008 2009 2010 2011 2012 World 263,682 563,090 596,307 493,819 480,321 523,073 425,915 335,257 United States 248,232 469,043 515,797 402,459 389,564 414,678 329,934 257,297 Mexico 197 43,712 57,125 48,489 48,063 49,437 34,609 23,233 Hong Kong 116 919 13,035 10,048 12,663 21,125 29,108 24,106 Japan 8,871 22,155 7 6,905 11,313 17,932 13,153 14,370 Russia 84 0 0 513 1,084 5,859 5,393 1,867 Taiwan 743 2,335 0 1,907 3,926 3,239 1,497 520 All other countries 5,439 24,926 10,343 23,498 13,708 10,803 12,221 13,864 Export Market Shares United States 94.1% 83.3% 86.5% 81.5% 81.1% 79.3% 77.5% 76.7% Mexico 0.1% 7.8% 9.6% 9.8% 10.0% 9.5% 8.1% 6.9% Hong Kong 0.0% 0.2% 2.2% 2.0% 2.6% 4.0% 6.8% 7.2% Japan 3.4% 3.9% 0.0% 1.4% 2.4% 3.4% 3.1% 4.3% Source: Global Trade Atlas / *Conversion to carcass weight equivalent at 1.4 6 | P a g e Canada – Livestock Semi-annual – March 2013 HOGS AND PORK NOTE: "NEW Post" data reflect author's assessments and are NOT official USDA data CANADA 2011 2012 2013 Animal Numbers USDA NEW Post USDA NEW Post USDA NEW Post SWINE ('000 head) Official Data Data Official Data Estimates Official Data Forecast Total Beginning Stocks 12,690 12,690 12,785 12,785 12,813 12,815 Sow Beginning Stocks 1,193 1,193 1,195 1,195 1,165 1,185 Production (Pig Crop) 28,593 28,593 28,400 28,400 27,850 28,200 Total Imports 3 3 3 2 3 3 Total Supply 41,286 41,286 41,188 41,187 40,666 41,018 Total Exports 5,821 5,821 5,725 5,672 5,550 5,650 Total Slaughter 21,269 21,269 21,200 21,300 21,100 21,100 Loss 1,411 1,411 1,450 1,400 1,500 1,400 Ending Inventories 12,785 12,785 12,813 12,815 12,516 12,868 Total Distribution 41,286 41,286 41,188 41,187 40,666 41,018 NOTE: "NEW Post" data reflect author's assessments and are NOT official USDA data CANADA 2011 2012 2013 Meat USDA NEW Post USDA NEW Post USDA NEW Post SWINE Official Data Data Official Data Estimates Official Data Forecast Slaughter (Reference) 21,269 21,269 21,200 21,300 21,100 21,000 Beginning Stocks 44 44 63 63 43 61 Production 1,797 1,797 1,790 1,820 1,775 1,795 Total Imports 204 204 240 241 225 245 Total Supply 2,045 2,045 2,093 2,124 2,043 2,101 Total Exports 1,197 1,197 1,250 1,243 1,195 1,235 Total Dom. Consumption 785 785 800 820 810 820 Ending Stocks 63 63 43 61 38 46 Total Distribution 2,045 2,045 2,093 2,124 2,043 2,101 All data in 1,000 metric tons, carcass weight equivalent, except slaughter in 1,000 head In the fall of 2012, Post reported that the prospect of high feed costs and a reduced demand for feeder hogs in the United States had the potential to jeopardize the recovery in the hog sector. At the time, Post anticipated that, facing higher costs and struggling financially, smaller producers would start liquidating their inventories, and the sow herd would decline substantially. While producers' concerns regarding feed costs remain valid, and their financial situation continues to be fragile, the magnitude of the herd liquidation was vastly overrated. Most producers remained in business and continued to produce as usual, on expectations of improved hog prices supported by sustained demand and tight supplies. 7 | P a g e Canada – Livestock Semi-annual – March 2013 As such, Post revises upward the sow herd estimate for the beginning of 2013, up by 20,000 head compared to the USDA official estimate. As a consequence, with more sows remaining in production, the pig crop is also revised higher, by 350,000 head. Post now forecasts the overall hog supply for 2013 higher by almost 1 percent compared to the USDA official estimate; however, this remains about 0.5 percent smaller than the 2012 estimate. As the feed price scare fades away, the demand for Canadian feeder hogs is expected to return to more normal levels, and this is what will drive the estimated change in hog exports in 2013. Compared to the USDA official volume, Post revises upward by 100,000 head to 5,650,000 the total hog exports for 2013. This level is comparable with the 2012 hog export level that stood at 5,672,000 head. Source: Global Trade Atlas Hog slaughter is expected to remain unchanged compared to the USDA official estimate; however, carcass weights changed, and have now an impact on pork production. While it is estimated that in 2012 weights increased by almost 1.5 percent compared to 2011, 2013 carcass weights are anticipated to decline by about 0.5 percent. This is due to the fact that, given the higher feed costs, producers prefer to sell the hogs quicker, while packers are willing to take in these lighter hogs given the need to supply a very tight market. Nevertheless, despite the anticipated reduction in weights for 2013, carcasses will still be heavier than previously estimated and, therefore, Post adjusted upwards by 20,000 MT the pork production, compared to the USDA estimate. Canadian pork exports are likely to be impacted by a number of factors in 2013. First, starting from December 2012, the Russian authorities have prohibited the importation of pork containing ractopamine. The Canadian industry and authorities have so far complied with all requirements set by Russia, and there is no reason to believe that they would not continue to do so throughout the year. Russia grew to become the third largest pork export market for Canada in 2012, and, in 2013, it is likely to become the second largest market. This development could happen based on several factors. On one side, Canada's exports to Russia will increase if the United States remains locked out of that market. On 8 | P a g e Canada – Livestock Semi-annual – March 2013 another side, exports to Japan (currently the second largest export market) are expected to remain sluggish because of a weakening in the Yen, making imports from Canada more expensive. Second, pork exports to South Korea are likely to see an additional decline. As the U.S.-Korea FTA continues to be implemented, tariff cuts are making American pork increasingly more competitive in that market. Simultaneously, the Korean pork industry recovered fully after the 2011 FMD outbreak and returned to previous levels of production. Third, in a recent development, the Chinese authorities have placed additional ractopamine-related requirements on U.S. exports of pork to that market. To the extent the United States may not be able to meet those requirements, Canada could partly capture some of their lost market share. Finally, the Comprehensive Economic and Trade Agreement (CETA) under negotiation between Canada and the European Union, which at this point is reportedly very close to completion, is not likely to have a major impact on pork exports in 2013. Aggregating the influence of the various factors described above, Post revised upward the pork export estimate to 1,235,000 MT, 40,000 MT higher than the USDA official estimate. Source: Global Trade Atlas / *Post estimate Post also revised upward the pork imports estimate to 245,000 MT, 20,000 MT higher than the USDA estimate. It is expected that, as U.S. exports of pork cannot reach markets such a Russia, or potentially markets like China, additional volumes of pork will be shipped to Canada. 9 | P a g e Canada – Livestock Semi-annual – March 2013 CANADA: Total Pork Imports (Quantity in metric tons, CWE*) 1995 2000 2005 2010 2011 2012 World 31,119 67,759 139,445 183,337 203,978 241,172 United States 26,320 61,883 129,818 177,495 195,744 228,463 Chile 0 0 1,027 2,262 2,696 3,340 Denmark 4,443 4,809 6,814 1,332 2,668 2,497 All other countries 356 1,067 1,786 2,248 2,870 6,872 Import Market Shares United States 85% 91% 93% 97% 96% 95% Chile 0% 0% 1% 1% 1% 1% Denmark 14% 7% 5% 1% 1% 1% Source: Global Trade Atlas / *Conversion to carcass weight equivalent at 1.3 CANADA: Total Pork Exports (Quantity in metric tons, CWE*) 1995 2000 2005 2010 2011 2012 World 366,189 659,814 1,083,686 1,159,196 1,197,248 1,242,931 United States 257,416 420,854 477,899 395,559 364,714 360,639 Japan 51,434 125,661 304,063 259,966 255,667 245,621 Russia 8,819 8,110 25,499 99,563 167,245 243,936 China 299 1,929 18,045 38,998 78,829 89,002 Korea South 5,211 14,181 57,708 56,065 100,751 68,240 Mexico 1,894 17,049 45,565 61,858 35,420 43,165 Philippines 311 4,714 10,105 48,634 40,434 40,131 Australia 3,973 13,496 44,304 50,595 36,575 36,589 Taiwan 996 6,254 12,262 27,120 27,828 23,008 Hong Kong 4,717 5,947 4,015 31,439 13,925 12,291 New Zealand 2,813 10,836 8,688 10,861 11,473 7,987 All other countries 28,306 30,783 75,533 78,538 64,387 72,322 Export Market Shares United States 70.3% 63.8% 44.1% 34.1% 30.5% 29.0% Japan 14.0% 19.0% 28.1% 22.4% 21.4% 19.8% Russia 2.4% 1.2% 2.4% 8.6% 14.0% 19.6% China 0.1% 0.3% 1.7% 3.4% 6.6% 7.2% Korea South 1.4% 2.1% 5.3% 4.8% 8.4% 5.5% Mexico 0.5% 2.6% 4.2% 5.3% 3.0% 3.5% Source: Global Trade Atlas / *Conversion to carcass weight equivalent at 1.3 10 | P a g e
Posted: 21 March 2013

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