Ontario's pork trade balance with the U.S.

Monday, August 4, 2014

American producers replaced some lost pigs with bigger hogs, but pork exports to Ontario are down

by RANDY DUFFY

The reduced hog supply in the United States from PED has had an interesting impact on pork flows. U.S. hog marketings are projected to be down four per cent, but much heavier hogs are being raised this year and, as a result, pork production is expected to be down less than two per cent.

One would expect 2014 U.S. pork supplies and therefore exports to be significantly lower compared to 2013. For the period January to May 2014, total U.S. pork export volumes to the world are up nine per cent compared to the same period in 2013. The trend is different though for exports to Ontario. These are down 15 per cent.   

Figure 1 shows Ontario's monthly pork trade balance with the U.S. from January 2009 to May 2014. The trade balance is calculated as Ontario pork exports to the U.S., less Ontario pork imports from the U.S. This trade balance is then converted to a market hog equivalent by dividing by Ontario's average monthly hog dress weight. For example, the most recent data available for May 2014 shows Ontario exported 10.4 million kg to the U.S. while importing 10.6 million kg. The trade balance of -0.2 million kg was then converted to 1,860 market hog equivalents using a hog dress weight of 101.2 kg.

The data in Figure 1 shows some interesting patterns. Through 2009, 2010 and the first half of 2011, Ontario was in a positive position as exports to the U.S. were greater than imports from the U.S. From mid-2011 to September 2013, the trade balance shifted to a negative position with Ontario importing more pork from the U.S. than it was exporting there.

Why did this shift happen? There are likely many factors behind this but two definitely come to mind. The first factor is the currency exchange rate. During the period when Ontario was in a positive trade balance, the value of the Canadian dollar averaged $0.95 relative to the U.S. dollar. When the trade balance was negative, the Canadian dollar averaged $0.99 relative to the U.S. dollar, which made it cheaper for Canadian buyers to source U.S. pork. The second factor is the low price features that Canadian grocery retailers run frequently for products such as tenderloin, loins and ribs. These features are quite popular with consumers and require large volumes of product. Often it is difficult to source sufficient Canadian product for these features and so imports from the U.S. are used.

Another interesting shift has happened since October 2013. The impact of PED on U.S. hog numbers and pork supplies really started to show up in the fall of 2013. Since that time, Ontario has switched back to a small positive trade balance in five out of eight months. The U.S. is both exporting less pork to Ontario and importing more pork from Ontario. It also helps that during this eight month period the Canadian dollar has weakened, averaging $0.93 relative to the U.S. dollar, providing support for exporters.

In summary, the pork trade balance between Ontario and the United States will continue to fluctuate depending on supply and exchange rate. BP

Randy Duffy is Research Associate at the University of Guelph, Ridgetown Campus.