This past week I spent time in southwest Ontario, traveling with a swine veterinarian and presenting at a couple of producer meetings. On Tuesday of this past week, the January 1 pig inventories for Canada were also released by Statistics Canada.
While those of us in the swine industry in the US have been living with losses for the past 2 years, these losses so far have not translated into closure of very many swine production facilities. In Canada, it’s a different story.
The Canadian inventory peaked on October 1, 2005 at 15.205 million pigs. On January 1, 2010 it stood at 11.630 million head, a 23.5% drop. On January 1, 2005, there were 1.634 million head in the kept for breeding category, with this number falling 18.3% (299,000 head) to 1.335 million head on January 1, 2010.
The largest share of this decline in inventory has occurred in Ontario. Pig numbers in Ontario declined from 3.105 million pigs on January 1, 2009 to 2.868 million head on January 1, 2010, a 7.6% decline in inventory in 12 months. From their peak inventory numbers in 2006, Ontario producers have reduced total inventory almost 1 million head, with a 100,000 head reduction in the breeding herd. Their industry has contracted almost 25% in the past 3 years.
As we were driving around I saw several 2-400 sow farrow-finish sites sitting empty. At the meetings, all of the producers were seeking answers to questions about their future.
Compared to US producers in the Midwest, the future does not look very clear for Ontario producers. While they are excellent producers and have risen to the challenge of getting more pigs with less expense, there are several location and trade issues that they must overcome.
In Ontario, over 50% of the pigs are slaughtered at the Maple Leaf plant in Burlington. This plant was for sale by Maple Leaf at one time and there is continued concern about its long term future. All other slaughter plants are very small and could not absorb Ontario’s production if the Maple Leaf plant were to close.
Ontario is east of Chicago and has a net positive basis relative to Chicago for corn. While Iowa and Southern Minnesota producers typically price corn at -$0.30 to -0.40 below Chicago, Ontario producers typically price it at +$0.10 to +0.30.
The Canadian dollar is very strong relative to the US dollar. In Ontario, the only risk protection is US markets so any currency fluctuation must be included in the risk. With a strong Canadian dollar and weak US dollar, anything priced in US dollars becomes very expensive. Said another way, anything paid for in US dollars becomes worth less when converted to Canadian dollars.
Canada has approximately 30 million people, with the majority located within 50-75 miles of the US border. With a pig herd that is 1/6 the size of the US herd, and a population that is less than 10% of the US, this means they are very dependent on exports for profit. The strong Canadian dollar versus the US dollar means US producers can sell identical products in export markets for less money, making US pork a preferred product because of price.
While many of the Ontario producers I visited with intend to remain in production for now, they are not optimistic about the opportunities for youth to return to the family farm with pig production as the base enterprise. When the current production facilities reach the end of their productive life, many producers will close the door on pork production.