Canadian Feeder Pigs

The impact of exchange rates and trade rules shows up in our pork industry in a variety of ways. For instance, poultry and swine producers in the southeast region of the US can now bring in grain from South American at a price that is very competitive with the price of US grain sourced from the Midwest. This is because of the strength of the US dollar versus the Brazilian Real and the Argentinian Peso and the cost to transport grain within the US.

On the other hand, selling US products to other countries becomes harder because it takes more local currency to buy a metric ton of grain, a pound of pork or any other ad commodity from the US than from many of our competitors. The currently strong US dollar means pork from the European Union may be cheaper for the Chinese than US origin product. This is in spite of the fact that long term the US producer has one the lowest (and most competitive) costs of production.

Currency rates and the repeal of MCOOL are now playing out in the US feeder pig markets. The Canadian dollar traded last week over $1.44 Canadian per US dollar. Only a few years ago it traded as low as $0.90 Canadian per US dollar and the historic trade level is around $1.25 Canadian per US dollar.

To understand the impact of this relationship I’ll use weaned pig prices for Canadian born pigs delivered to the upper Midwest. When weaned pigs are worth $40 US to US producers, this translates into $36 Canadian dollars when the Canadian dollar was $0.90 and $57.60 when the Canadian dollar is $1.44. Remember, the US producer paid $40 US in both scenarios while the impact on the Canadian producer was quite different.

The impact of MCOOL repeal and strong US dollar is showing up in the number of pigs being imported from Canada. For the week ending January 9, 2016 US producers imported 97,197 pigs weighing less than 55 kg (110 lb). While not detailed in the USDA report I’m pretty sure the vast majority were weaned pigs. The last time this many pigs crossed was the week ending January 19, 2013 when 98,805 pigs weighing less than 55 kg entered the US from Canada.

I’ve had several calls in the past few weeks from contacts and clients in western Canada about the possibilities of new facilities. Manitoba Pork has gone so far as to hire an engineering firm to put together construction budgets for new finishing facilities (the vast majority of these pigs would stay in Canada) while several feeder pig producers are talking expansion in light of the current demand for Canadian weaned pigs in the US.

In 2008 prior to the implementation of MCOOL, US producers imported 6.77 million feeders into the US vs 3.93 million in 2014 and 4.31 million last year. It appears that economic signals are in place to result in US imports of Canadian born feeder pigs increasing dramatically in the next few years.

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