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FCC said the hog sector is struggling

FCC said the hog sector is struggling

Even though the ag industry shows growth, the hog sector doesn’t.

By Andrew Joseph,

Farm Credit Canada (FCC) has released its latest 2023 farm cash receipts update, noting that the Canadian hog sector struggles amid ag industry growth.

The analysis below has been prepared by Justin Shepherd, a Senior Economist at FCC, and slightly edited by

In the January forecasts, the FCC expected farm cash receipts (FCR) to continue growing in 2023, although at a more moderate pace than in 2022. While specific sectors’ FCRs have varied since January, the June projections for total Canadian FCR remain unchanged.

The FCC forecasts the 2023 FCR to grow by 4.5 percent, helping offset some high input costs.

This analysis only looks at the revenue side of the ledger, and a higher FCR does not necessarily mean that farm profits are increasing.

Prairies showing growth while hogs limit Quebec and Ontario receipt growth
Statistics Canada released the 2022 FCR in May, along with revisions for previous years. The revisions were large enough to change the direction of several 2023 forecasts.

Corn, for example, is now forecast to be down year-over-year (YoY) because they revised 2022 upwards so significantly, while the FCC's initial 2023 forecast has only increased slightly.

FCC’s 2023 projections of YoY changes in FCR incorporate StatCan FCR estimates for the first quarter and data from other sources. The largest projected increases in 2023 FCR are in the Prairie provinces and Atlantic Canada. Ontario and Quebec are projected to decline in 2023, primarily due to weaker hogs and crop receipts. British Columbia’s decline is due to total crop receipts declining.

Grains, oilseeds, and pulses receipts continue to grow in 2023 after a strong 2022
FCR for grains, oilseeds, and pulses is projected to grow 7.7 percent in 2023 and follow a strong growth of 19.9 percent in 2022. The FCC’s projected growth in 2023 has declined slightly from January’s forecast due to 2022’s actual data being revised higher.

Corn and soybean receipts are forecast to be lower in 2023. While 2022 saw historically high crop prices, some regression can be expected in 2023. In the Prairies, strong growth is still expected for crops like canola, wheat, peas, and lentils as the remainder of the 2022 crop is marketed, and current expectations are for average yields in 2023.

Crop prices remain above their five-year average due to tight global stocks-to-use ratios. Of course, developing dry conditions in the US and Russia threatening not to extend the Black Sea agreement could lift prices in the second half of 2023 and lead to higher realized receipts than our current forecasts.

Livestock receipts heading in different directions
What a difference six months have made for the cattle and hog markets.
Cattle prices have continued to increase since January, outweighing lower marketed volumes and pushing the forecasted FCR up 15.1 percent for 2023.

This is on the back of 16.5 percent growth in 2022, when strong consumer demand outpaced the available supply of a declining North American cattle herd.

Continued strong cattle pricing has increased the FCC’s 2023 FCR projections since January.

In sharp contrast, the outlook for hogs is challenging.

US hog futures prices have weakened due to lower export demands as Chinese pork production rebounded from recent lows.

In addition, Canadian prices have been further impacted by slaughter capacity constraints in eastern Canada. These unexpected market factors have brought turmoil to the hog industry and changed the FCC’s 2023 hog FCR forecast from being initially positive in January to a 9.0 percent decline in FCR.

In response to increasing costs for feed and energy, the Canadian Dairy Commission increased the support price for butter on February 1st, 2023, estimating it would result in a 2.2 percent increase in the milk price. Marketed milk is forecast to grow slightly as well, and, as a result, dairy FCR is projected to grow by 4.6 percent in 2023. This growth is slightly lower than the January forecast.

The Bottom Line
The FCC expect FCR growth for most agricultural sectors in 2023. The projected small declines in corn and soybeans are due to 2022’s excellent and better-than-anticipated prices and yields.

Hog FCR projections have flipped from positive to negative in the year’s first six months, showing how quickly the ag economy can change.

The big turn in fortunes further illustrates the need for effective risk management strategies.

Heading into summer, crop yields and prices will depend on good weather to bring a strong conclusion to 2023.

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