Growth in the demand for pork in emerging markets is expected to continue to lead the recovery of the Canadian pork industry.
Following three to five years of producing hogs at below the cost of production Canadian pork producers are once again operating in the black.
Farm Credit Canada Senior Agricultural Economist J.P. Gervias says net margins are now positive driven mostly by growth in emerging markets.
Clip-J.P. Gervias-Farm Credit Canada:
As these emerging countries, we're talking about obviously China, India but also the, quote unquote, smaller economies like Indonesia, Vietnam , South Korea, Mexico, these countries are growing at a much higher rate than the western world, Canada, the U.S. and Europe.
When you see the growth that you're seeing in these countries it has an impact on food preferences, especially in a demand for animal protein.
So right now what we're seeing, to me, it's really a demand led recovery in that the increased demand in emerging markets is leading the way in terms of the recovery.
Down the road we're thinking that the trends in terms of growth and the resulting impact on food preferences is going to have a benefit for pork producers.
Most of the models right now look at positive margins for the next 12 months.
The big unknown right now is that as that at the same time as the demand for meat products is going up, the demand for grains is also going up and that has an impact on feed prices.
The big unknown is whether we're going to have some significant increases in meat prices that are more than going to compensate for the higher cost of producing hogs.
Gervias says if the recovery is sustained we can expect prices in the meat market to be high enough to compensate for higher grain prices but, he acknowledges, producers will be facing even more volatility down the road and prices will be moving even faster in the next 12 to 18 months.