UPDATE 2-Canada hog, cattle herds shrinking fast

* Hog herd down 4.5 percent at Jan. 1

* Cattle herd slips 1.3 percent

* High feed costs, smaller livestock exports hurt
(Adds biofuels industry comment, paragraphs 12,13)

By Rod Nickel

WINNIPEG, Manitoba, Feb 16 (BestGrowthStock) – Canada’s hog and
cattle herds shrunk to their smallest levels in more than a
decade as the livestock industry reels from rising costs and
export barriers, Statistics Canada said on Tuesday.

The country’s hog herd fell 4.5 percent year over year to
11.63 million head on Jan. 1, the smallest it has been in 12
years. The cattle herd slipped 1.3 percent to a 15-year low of
13.015 million head.

The reduction in cattle is due to beef cattle ranchers
downsizing their herds, while the supply-managed dairy cattle
herd changed little year over year.

Ranchers and hog farmers have suffered from a surge in feed
grain prices since 2007 due to increased ethanol demand,
Statscan said. The appreciation of the Canadian dollar and
implementation of the U.S. country-of-origin meat labeling law
last year have also cut sharply into livestock exports.

Given the circumstances, it’s surprising hog farmers aren’t
cutting back more quickly, said Andrew Dickson, general manager
of the Manitoba Pork Council. Farmers are earning C$127 ($122)
per finished pig, well below the break-even level of C$140,
Dickson said.

Farmers actually need about C$160 per slaughter pig to
account for their average debt load, Dickson said.

Despite the downsizing, farmers continue to keep hog packer
Maple Leaf Foods (MFI.TO: ) in Brandon, Manitoba, well enough
supplied to run two production shifts as the U.S. labeling law
discourages U.S. packers from buying foreign livestock.

Feed companies, however, have suffered from farmers
slashing herd sizes, Dickson said.

Downsizing of the beef herd will likely continue into 2011
or 2012, said Scott McKinnon, market analyst for Canfax in
Calgary, Alberta.

“Obviously, we have an over-capacity in the feedlots and
packing plants and that’s going to play a part,” he said.
“Nothing is going to change until we can stimulate demand.”

The industry needs to see a global economic recovery that
would revive demand for beef, McKinnon said.

The problems facing the livestock industry are many, but
rising biofuels production is not one of them, said Gordon
Quaiattini, president of the Canadian Renewable Fuels
Association. Some biofuels production uses corn and wheat, the
same grains farmers feed to livestock.

“The report is factually wrong,” he said. Grain prices
spiked after 2007 with crude oil, not because of additional
demand from the biofuels sector, he said, adding that prices
have since retreated despite record biofuels production.

The cattle herd shrunk 4.3 percent in Alberta, but grew 5.7
percent in the adjacent western province of Saskatchewan. The
increase there likely reflects Alberta farmers feeding their
cattle elsewhere to cope with drought conditions, McKinnon
said.

Unlike the cattle industry, the hog sector is carrying out
a planned downsizing to turn around its long-term decline,
aided by government incentives to farmers ceasing production.

Cheap retail pork prices in Canada have kept consumption
high, Dickson said. Downsizing and that strong demand should
stabilize or increase store prices later this year, he said.

Dickson said the Canadian industry’s downsizing does not
have a major impact on Chicago live hog futures (LHc1: ), which
have gained nearly 13 percent from a year ago.

Chicago live cattle futures (LCc1: ) have risen 11 percent in
the last year.

($1=$1.04 Canadian)

Stock Market Research

Statscan livestock report: http://link.reuters.com/vav79h
(Editing by Lisa Shumaker)

UPDATE 2-Canada hog, cattle herds shrinking fast