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WINNIPEG Manitoba/CHICAGO (Reuters) - Shortages of hogs and packing plant workers in Canada, exacerbated by recent government restrictions, may severely cut hog processing and pork exports, helping to keep North American retail pork prices near record highs.
Farmers in Canada, the world's third-biggest pork shipper, are also bracing for the spread of a deadly virus that has killed millions of piglets in the United States.
Further dwindling of Canadian supplies would especially reverberate in the United States, which relies on young Canadian pigs for fattening and slaughter, and in markets as far away as Japan and South Korea that import Canadian pork.
"If those Canadian pigs don’t flow south, you’re going to have U.S. hog farmers bidding against each other to get pigs," said University of Missouri livestock economist Ron Plain.
Porcine epidemic diarrhea virus (PEDv) spread to Canada last winter and has been detected in several Canadian provinces, most notably at dozens of Ontario farms and four in Manitoba.
Chicago lean hog futures hit an all-time high in summer and have since eased as U.S. farmers rapidly rebuild their herds from losses to disease, but they remain at historically high levels.
A disruption in Manitoba's exports of 2.5 million feeder pigs annually to the United States would slow those efforts and lift prices. But such a threat has flown below the market's radar.
"I haven’t heard anyone bring up Canadian hogs at all," said Chicago-based JBS Trading Co president James Burns, adding that the market focused on the virus' impact on U.S. supplies. "And over the past few years, Canada has significantly reduced their herds, so I think we lost interest in them a little bit."
Canada's 1.2 million sows and gilts - representing the herd's reproductive capacity - are 25 percent fewer than their peak numbers a decade earlier, although they have recently inched higher.
In Manitoba, the biggest provincial exporter of young pigs to the United States and home of a huge slaughter plant for mature hogs, the New Democratic Party government has since 2011 allowed expansion or replacement of hog barns only under environmental conditions that the industry complains are the strictest in the world.
The industry is also coping with new federal restrictions on hiring temporary foreign workers, even as the country's two biggest pork packers, Maple Leaf Foods and Olymel LP, struggle to find staff for their western plants.
The situation has gotten so dire that Maple Leaf may shift some processing from Brandon, Manitoba to rivals' plants in the United States, the company told Reuters.
"That is definitely in our sights because we have to continue to meet our customers' needs," said Rory McAlpine, Maple Leaf's vice-president of government and industry relations.
Maple Leaf can slaughter 90,000 hogs per week in Brandon, but is killing as few as 65,000. It has 190 vacant positions, representing 10 percent of the plant workforce.
Olymel's Red Deer, Alberta plant is running at half of its capacity due to problems finding workers.
The plant depends on temporary workers mainly from Ukraine and the Philippines for 30 percent of its workforce. But the government's changes to the foreign worker program would drop that threshold to 10 percent in the next couple of years, said Olymel spokesman Richard Vigneault.
"There's a big problem ahead if they go ahead with the changes," he said. "If we face a serious manpower shortage in the future, there is some possibility the production will go down of course."
The plant exports pork mainly to the United States, Mexico, Japan, Australia and South Korea.
Changes to the program will ensure that it is a last resort for employers to fill labor shortages when qualified Canadians are unavailable, said Pierre Nolet, spokesman for the federal employment department.
With attractive hog prices and cheap feed grain, hog farmers have reason to expand. But they cannot do so in Manitoba without spending about C$1 million ($895,000) on equipment to treat pig waste.
Manitoba law requires a system of breaking down organic materials using micro-organisms, called an anaerobic digester, in order to reduce the flow of phosphorus and nitrogen into Lake Winnipeg.
The requirement, expanded to the whole province in 2011, "brought any expansion to a shuddering halt," said Andrew Dickson, general manager of farmer organization Manitoba Pork.
In a statement, the Manitoba government said it would work with the hog industry but not allow production at the expense of the environment.
Packers are not the only ones coping with fewer pigs.
Canadian feeder pig exports to the United States plunged 42 percent to 4.2 million head in 2013 from five years earlier.
The drop reflects Manitoba's restrictions, U.S. country of origin labels that made imports more costly for the American industry, and moves by Canadian packers to acquire large hog farms, said Canadian livestock analyst Kevin Grier.
In 2014, feeder pig exports to the United States are down again. But Grier said market conditions may change with U.S. hog supplies still running short.
Smaller supplies of pigs from Canada would create surplus capacity of U.S. barns to raise them to slaughter weight, said University of Missouri economist Plain.
For the Manitoba industry, prevented from expanding by tough environmental rules, much depends on how quickly PEDv spreads among the herd.
"If the weanling pig supply dries up from Canada, a lot of us would lose our flexibility ... for some people, it is their only source of pigs," said Iowa hog farmer Bill Tentinger.
Editing by Jeffrey Hodgson and Marguerita Choy