Subsidies help drive divergence in hog herds

Report says U.S. support allows expansion there to continue while cramping Canadian farmers’ ability to be profitable

One pig herd has stagnated.

One has greatly expanded.

What’s behind the different growth rates of the Canadian and American herds?

American subsidies have a lot to do with it, argue Al Mussell and Douglas Hedley of Agri-Food Economic Systems, a Guelph, Ont., analytical firm.

Subsidies south of the border have allowed American farmers to continue expansion, while cramping the ability of Canadian farmers to operate at a profit.

“Canada has not pursued the same expansionary pork production growth trajectory as the (United States), but has experienced the price effects of U.S. expansion,” they write in a policy note entitled Business Risk Management Under Seige: Alternatives for Canada.

“Canada shares a hog and pork pricing model with the U.S. under free trade and geographical arbitrage, and dampened hog and pork prices in the U.S. have dampened prices in Canada.”

U.S. hog production has steadily increased since 2014, from an average of 8.8 million slaughtered per month at U.S. plants to 10.8 million in 2019, or an increase of 21 percent.

In Canada slaughter of about 27 million per year is essentially flat since 2014.

U.S. production subsidies due to President Donald Trump’s U.S.-China trade war are only a phenomenon of the past couple of years, but Mussell and Hedley think they are a crucial element that allows U.S. producers to keep expanding while keeping Canadian producers on the ropes.

The subsidies help U.S. farmers stay afloat and produce pigs at greater rates than they probably would if they didn’t have that government support.

That suppresses prices, which have suffered as China’s restrictions on U.S. pork have caused pigs to back up in North America.

Canadian farmers don’t get that support from the U.S. government, but they do experience the lower prices partially created by that support.

Mussell and Hedley don’t expect the trend to change if the U.S. subsidies continue.

“Rather, with these supports now in place for hogs, there is less incentive for the U.S. swine herd to retrench and bring supply more in balance with demand, and perhaps an incentive for renewed expansion, meaning that broadly weak hog prices can be expected to continue, for both the U.S. and Canada,” they conclude.

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