www.Meristem.com

Meristem Land and Science: Driving Progress in Sustainability

BANFF PORK SEMINAR

2014 Banff Pork Seminar

Bright outlook for Canadian pork production

Date posted: January 23, 2014

What's the economic outlook for Canadian pork production?

The numbers tell the story, says Steve Meyer of Paragon Economics, who provided an overview of the key global forces driving Canadian pork production at the Banff Pork Seminar.

Rising population key long-term factor

Two key numbers are 7.601 and 10.112. These figures, in billions, represent the world population today and as projected for 2050. This population growth is clearly going to be a driver of production, says Meyer, particularly for an export-oriented country such as Canada.

The bulk of population growth is going to happen in specific parts of the world, primarily in Asia and Africa, he says, with Asia representing by far the greatest potential for increased demand for pork from Canada and the U.S.

Think Asia as a whole, not just China

Another important number is 43, says Meyer. "If we take six countries in southeast Asia - China, India, Pakistan, Bangladesh, Indonesia and Japan, they account for 43 percent of the population of the world today. If we throw in four more that are in the top 20 countries in population we have half of the world's people residing in Asia."

The bottom line? "We've had this focus on 'China, China, China,' for many years," says Meyer. "There's no question China is important. But we have to look at Asia as a whole to see the full opportunity."

The other big story related to this is continued rapid income growth in Asia, he says. "As urbanization increases and the GDP goes up we're going to see more and more demand for animal protein."

Feed ingredient supplies looking good

Another two important figures are 134 billion and 13.5 billion. The first represents the gallons of gasoline used in the U.S. in 2013. The second indicates the amount of ethanol use required in 2014 based on renewable fuel legislation.

Despite forecasts to the contrary when U.S. ethanol policy was introduced, gasoline usage is actually starting to trend downward for the long-term, says Meyer. That is likely to mean a parallel tapering off of ethanol production.

"Ethanol usage of corn is flat right now and I think it is going to remain so," says Meyer. "That's good news for the rest of us because production of corn continues to go up and 2014 is shaping up to be the fourth largest year on record for the amount of corn and distillers dried grains available for feed usage". Feed ingredient supplies increased to near pre-2008 levels in the U.S. in 2013 and future is positive for this to become the 'new normal.'

'New normal' is positive

Other key numbers in the new normal are 4.5, 10.5, 325 and 75 – respectively, what Meyer sees as the midpoints of expected price ranges for corn, soybeans, bean meal and U.S. hog costs.

Also important is the forecasted exchange rate, given the recent drop in the loonie. While expectations are for the Canadian dollar to settle and plateau at about 90 cents U.S., just as important Meyer advises is for Canadian pork production to learn from the past as it both capitalizes on and manages this change in the dynamic.

"There's been a lot of variation over the past 40 years," he says. "What I want to remind you of is what happened the last two times we had this devaluation of Canadian dollar. One time we had counterveil and a lot of animosity. The other time we had dumping. Let see if we can be better prepared in the future. We don't want another shoe to fall on this one."

Consumer demand holding strong

When it comes to taste and preferences, pork is looking strong and steady in North America, says Meyer. He acknowledges that may be somewhat surprising given the high profile of activist campaigns and related media coverage of issues such as sow housing. But essentially it indicates this factor is not having a major influence on consumer demand. "The U.S. data says that consumers are not paying attention to that. There are groups that are, no question, but it's not a major factor beyond that. The data says preference for meat in the U.S., including for pork, is very strong," says Meyer.

"Clearly something right is going on. We have some preferences with consumers who are willing to pay a lot more than what a stable market demands and I think that's an important – maybe the most important - economic factor driving your business right now."

Stable market conditions

The world situation for pork supply and demand, and Canada's place in it, also appears positive and stable, he says. The numbers, here again, tell the story.

The major pork importers, from largest on down are Japan at 23 percent, China and Hong Kong at a combined 23 percent (15 and 8 respectively) Russia at 18 percent and Mexico at 13 percent. "The projections for 2020 are hardly any change from these numbers," says Meyer.

The major pork exporters, same order, are the U.S. at 36 percent, the European Union at 33 percent and Canada at 17 percent. The 2020 projections are identical to these numbers.


NEW FROM MERISTEM