Depressed US pork market weighs on Canada
With US pork prices falling sharply in recent weeks, prices in neighbouring Canada have also taken a tumble. Carcase prices in the most recent week are around 30% lower compared with the June peak in both Quebec and Ontario.
The decline comes despite Canadian pork production falling compared to year earlier levels, in contrast with the neighbouring US. At 11.8 million head, slaughterings for the year to July are 1% below equivalent 2017 levels. This reflects productivity and disease challenges, as well as reports of weather-related plant closures and disruptive environmental controls. Nonetheless, this decline has been more than counteracted by increasing US supply availability. Tariff-free trade between the two countries inevitably ties the Canadian pig market to the US. Looking forwards, Canadian production may also start to pick up as some of the prior challenges phase out, compounding the increasing supply situation in North America.
Canada also exports live pigs to the US, particularly weaners for finishing with this trade reaching 4.8 million head in 2017. For the first half of the year, weaner exports were down 6% however, at 2.3 million head, and the smaller flow of slaughter pigs across the border also declined year-on-year. In the coming months, demand could be depressed further as the US industry faces a loss-making situation, which will therefore also have a knock-on negative impact on the Canadian pig market.
Looking at pork exports, volumes were down 1% (-4,300 tonnes) for January to June at 487,200 tonnes, although this was driven by early 2018 and for Q2 export volumes were actually around 1% higher (+1,800 tonnes) year-on-year. Nonetheless, declining average prices meant that value was still 6% lower across this period, and for the first half overall (-CN$98 million). Surplus pork on the Chinese market meant these shipments in particular were 11% (-4,300 tonnes) lower year-on-year for the first half of 2018.
As evidenced by the pick-up in export volumes in Q2, there may now be improved opportunities for Canadian exporters in light of US trade tensions. Growth in shipments to Mexico averaged just 6% (+1,000 tonnes) in Q1, but this increased to 17% (+3,300 tonnes) in Q2. This may represent the beginning of Mexican importers moving to diversify suppliers, with US shipments penalised from the start of June. The simpler logistics of importing from Canada, as opposed to the EU or South American suppliers, may mean Canada in particular can benefit from US-Mexico trade tensions. Improvements can also be seen in Chinese trade, given the increasingly disadvantaged US pork, with shipments growing 15% (4,900 tonnes) year-on-year across May/June. Canada has also achieved 8% (+7,800 tonnes) growth in shipments to Japan so far this year, and if this growth can be sustained, it could also help provide opportunities for the Canadian market. Nonetheless, with uncertainty surrounding trading relations, and expanding global production, the coming months may prove a turbulent time for the key global exporters; Canada is no exception.
Bethan Wilkins, Analyst
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