BANFF PORK SEMINAR
Markets promising for new-look Canadian pork industry
Date posted: January 22, 2015
Kevin Grier, Kevin Grier Market Analysis and Consulting Inc.
Glass half empty or half full? Prospects bearish or bullish?
While major factors on both sides of the equation are battling for influence, there are more reasons for optimism in Canada's pork sector – including both production and processing fronts – than there have been for some time, says leading market analyst Kevin Grier, speaking at the 2015 Banff Pork Seminar.
"The industry is really entering a new era," says Grier. "It's a much different industry than it was in the past. We've got some issues, but many are short-term. In the big picture, I do believe we are globally competitive. Just how competitive we are can and does fluctuate. But we have to remind ourselves that we enjoy many advantages that are the envy of pork producing regions around the world."
Driving forward on export wave
The Canadian pork industry has undergone tremendous transition and now emerged with a new-look, streamlined profile.
"The industry has gone through an awful lot in a short period of time. It's a smaller industry. It's an industry that is varied in terms of the packer capacity. Competition is varied and depends on the time. But market potential looks good domestically and is particularly promising both short and long-term for export."
Globally the trends are more people to feed - at a pace of 75 million annually - and rising incomes. "Those trends will continue. The result is that demand for meat is far out-pacing production. Canada remains by nature an export nation for pork and there are clear opportunities."
Still, there are important hurdles and issues to tackle, he cautions. Some are self-imposed. Some are hard to change but can be better managed. Others are simply critical to fully recognize and factor in appropriately as part of industry strategies.
Canada's processing sector faces different capacity utilization issues across the country results in highly variable competition. "One major concern is that our packer margins are consistently worse than in the U.S.," says Grier. For production, obstacles include core economic challenges such as currency value fluctuations and the ethanol factor, along with restrictions such as animal welfare codes driven by social pressures and the influence of outspoken fringe groups. Global trade disruptions are always a threat, with Mandatory Country-of-Origin Labeling (MCOOL) standing as a leading current example close to home.
Cautionary optimism in order
Despite the challenges, a standout factor in Canada's favor is the resiliency the industry has shown during tough times. "It's pretty astounding what we made it through with the margin situation from the back half of 2006 to 2012. Now 2014 was a good year and we are moving forward." Today the industry is in a much better position and the strength it has shown bodes well for making gains in a much better environment, he says.
"One thing we can't do though is let our guard down," cautions Grier. "It will take time to get balance sheets back in shape from that long tough stretch we endured. The industry is 25 percent the size it was in 2005 and we've seen tremendous consolidation. "As it stands today, Canada is the world's sixth largest pork produce and 3rd largest exporter. "We're maintaining our markets and as they grow we can grow too."
A full 40 percent of the sow herd in Canada is in five hands and 40 percent of slaughter capacity is vertically integrated, owned by packers. "Is this good or bad for competition? I would say competition is transitory and that's the nature of our industry today. It ebbs and flows."
A big factor standing strong, though sometimes taken for granted, is the unique and inherent advantages of pork production in Canada, he says. "We have an abundance of fresh water and arable land. We don't have the level of health issues that every other pork producing country in the world has to deal with. We don't have the animal density issues that the U.S. does."
Concerns have included the performance of packers and dependence on the U.S market, but much of this is more myth than reality, says Grier. "Our packers know what they're doing and our pork goes to the highest priced market based on ongoing calculations that change day by day and sometimes hour by hour.
"As for the U.S., what's wrong with shipping to the richest market in the world?" he says. The numbers comparing all facets of pork production among leading global players indicate Canada is comfortably healthy and competitive both as a pork production region and a leading player in global markets.