The road back to profitability for the pork sector is likely long and difficult as Canadian producers continue to face a troublesome combination of declining domestic demand, fewer opportunities in export markets, and the spectre of tougher U.S. animal welfare regulations that could drive prices lower.
It all adds up to tough times for pork producers who are currently absorbing losses of $40 to $50 a head, says Christine McCracken, Rabobank’s senior analyst for animal protein.
“We have seen a little feed cost improvement, but generally, it’s a historically high cost of production and prices… are under a lot of pressure,” says McCracken. It all points to “some pretty aggressive moves to curb production” as the industry moves through the summer and into the second half of the year.
In this interview with RealAg Radio host Shaun Haney, McCracken looks at the challenges facing producers beginning with declining pork consumption and over supply. After two years of high demand, stemming from COVID-19, the industry has transitioned to a post-pandemic environment with much less demand. “The reality is that we’re kind of going back to more of a normal level, and supply is maybe a little ahead of that demand,” she says. “We’re a little long on product, and that’ll take some time to clean up. (Story continues after the interview.)
Could moving all that meat come at the expense of other proteins such as beef and chicken? McCracken doesn’t think so. She says research data indicates that consumers don’t generally do a lot of switching when it comes to their protein choice.
“I think that beef consumers, a lot of times, they’ll stick with beef, they may eat less, but they traditionally aren’t switching a lot,” McCracken says. “What we do see is movement along the edges. So people either do buy smaller portions of the same product, or they just switch out and look for fillers [such as pasta].”
Could export markets offer demand relief for the over supply of pork? Overall, exports have been strong for both the Canadian and U.S. industries, reflecting lower prices for pork, McCracken notes. Much of that strength has been driven by large production declines in large production regions such as China and Europe. That creates opportunities for North American producers to fill the gap, but economic woes felt around the globe, including inflation and slowing economies, could reduce consumers’ appetite for pork.
Overall, McCracken believes the Chinese market does not hold a great deal of opportunity for either country. “Canada has been doing a little better there than the U.S. to start the year. But when I think about it, in some of the Latin American markets, Canada does have a big advantage when we think about CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and some of the trade agreements that had been aggressively put in place by Canada that are going to open some opportunities longer term.”
Right now, the cost of feed may be the only bright spot for pork producers. “We did get a big South American crop and the planting season is off to a good start,” McCracken says. That should provide a little comfort “but a lot can happen between now and harvest.”
One thing that the industry will have to grapple with immediately is the impact of California’s Prop 12, the animal welfare initiative first passed in the state in 2018 and then upheld by the U.S. Supreme Court this month. It sets out space requirements for livestock in production systems and requires that all pork sold in the state be produced through Prop-12 compliant production.
“It’s going to create a lot of disruption in our domestic markets as we think through all of the implications,” McCracken says. Currently, huge amounts of pork production is not compliant with the new rules, due to take effect one month from now in California.
“We’re going to have a lot of excess pork on the market that won’t be eligible for export or for shipment into California and then into the Northeast with question three in Massachusetts so it does create this displacement effect that really just amplifies how poor these markets are,” McCracken says. “We’re gonna have a lot of extra pork on the rest of the market… it’ll either move into domestic markets or into export and that that will add another wrinkle for producers.”
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