While Canadian hog producers enjoy better times when the U.S. dollar climbs higher and higher, it does little for exports of U.S. meat products.
Dr. Steve Meyer, the vice-president pork analysis with EMI Analytics says 2015 was a difficult year for U.S. meat exports, but is confident those same lower prices will help turn the prices around in 2016.
The United States Department of Agriculture is forecasting an increase in meat exports during 2016.
Meyer says last year was tough for U.S. meat exports, primarily due to a 20 per cent run up in the value of the U.S. dollar. This pushed U.S prices higher relative to the competition, including Canada, in many markets and gave the EU, with product on hand because the Russians weren’t buying it, a big advantage.
“The beef industry was hurt far more than the pork industry and then the U.S. pork industry had that port slowdown a year ago that got us off to a terrible start,” he said. “We kind of came back and ended up a short two per cent for the year on exports so it did show a little bit of growth, beef exports were down roughly 10 per cent.”
Dr. Meyer says after a poor year in 2015, it couldn’t be anything but better this year and so the forecasts are for the beef exports to bounce back some.
“Number 1 is our product prices will be lower than they were for a year and a half and so that’ll offset some of this disadvantage with the dollar,” he said. “The high dollar is still there, at least the disruptive action, as the dollar changes. When exchange rates are changing there’s a huge amount of disruption from a timing standpoint.”
Meyer says even if they’re unfavorable to Canadian producers, but stable that’s a better situation and that’s where they are right now, and will most likely stay there.
“We agree with the USDA and think we’re going to see some increase in exports, although a little higher on the pork exports, than what they do,” he says. “They’ve got them at 3.2 per cent, while our numbers are more in the four to 5 per cent range this year. We got off to a nice start with a 10 per cent increase relative to last year in January. So there is some improvement and we think that’s going to continue.” Dr. Meyer expects the U.S. dollar to remain at about the same level over the next year.
A low Canadian dollar means higher exports of Canadian pigs to the U.S. and with the recent strengthening of the Canadian dollar to 77 cents, things change.
“Your prices are predicated on ours so it really doesn’t matter whether a Canadian producer is exporting a hog to the United States or just selling a hog in Canada they kind of win on that deal because they’re generating more Canadian dollars when they sell a hog up there because our price converts by the exchange rate,” he said. “It’s a profitable thing because only about half of Canadian’s costs get hurt by a stronger U.S. dollar and all of Canada’s revenues get helped by a stronger U.S. dollar so it’s stimulative for the Canadian industry.”
Meyer says a 90 to 92 cent dollar Canadian would be much better longer term because the lower dollar creates imbalances here.
“The last time the Canadian dollar was even close to this weak level, we saw a big expansion of the Canadian business,” he says. “That was part of what drove all of the decisions around Country of Origin Labelling and all of those kinds of things and we don’t need to repeat that. With that being said, this is an integrated market and I’m glad that M-COOL is gone because it should be gone.”
If Canadians raise a few more weaned pigs and bring them south for feeding and slaughter in the U.S., that’s not a bad thing. Dr. Meyer says the low Canadian dollar means the Canadian packing industry will have to compete harder to keep hogs in Canada and that will be true of the cattle business, too. As more animals flow south, fewer obviously stay in Canada for Canadian packers to kill, hurting them from a capacity utilization standpoint. •
— By Harry Siemens
