The August price crash and lingering discounts mean some prairie hog farmers are going to get knocked out of the market.
That’s the view of John Middel, an Alberta producer on the board of the Western Hog Exchange.
At these prices we’re going to lose the independents,” said Middel, who is concerned Canadian packers still tend to discount Canadian pigs to American pig prices, even though much Canadian product is flowing to Asia and should be receiving higher prices.
“There’s a complete disconnect between the (pork prices received by) Canadian pork processors and the prices they pay,” said Middel.
“There’s no supply and demand working.”
Many producers in the Canadian hog industry have complained about this issue with no incentives appearing to exist in Canadian pricing to attract Canadian farmers to enter or expand production, even though Canada has better access to Asia than U.S. producers.
The weak Canadian prices are being exacerbated by a slump in North American pig prices that are far beneath break-even costs.
In late August, western Canadian farmers were receiving cash prices of about $120 to $130 per carcass, while overall production costs were $160 to $175. Feed alone costs about $120 per pig.
The collapse in August was stunning and not typical. Chicago futures fell from $86 per hundredweight in late July to $49 near the end of August.
Hog prices usually decline after a midsummer peak but don’t slump until the fourth quarter. If a collapse is coming, it tends to happen in the autumn, when cooler weather allows pigs to grow faster and plants are losing production to holidays.
The current selloff isn’t just surprising because of its timing but also because autumn prices are higher.
“The market is guessing that we’re not heading into that kind of a calamity,” said Ken Ball of P.I. Financial in Winnipeg.
“The question is, are we just having an early selloff … or is the market in the process of one of those death-defying nosedives.”
Also puzzling through the conflicting signals is Tyler Fulton, director of risk management for Hams Marketing.
“The cash market just totally collapsed,” he said.
His best guess is that concerns over U.S. trade fights backing up supplies in North America, combined with a surge of pigs coming from bulked-up U.S. herds, made buyers back off from pricing.
“They just kind of flicked a switch. It didn’t pay to book much. Delay, delay, delay,” said Fulton.
But with African swine fever hitting China, the world’s biggest pork market, and the U.S.-Mexico trade war appearing to abate, buyers became more aggressive for the usually weak fourth quarter.
Andrew Dickson, general manager of the Manitoba Pork Council, said he worries about the financial situation of hog farmers if the slump goes on too long.
The better prices from October to December still leave red ink, following the gushing red ink of August.
“You’re going to be losing money,” Dickson said about those still needing to price fourth quarter pigs.
For some reason western Canadian pigs are still discounted compared to Ontario and Quebec pigs, and that discourages farmers from filling and expanding barns and building new facilities.
Middel said western Canadian pricing needs to find a way to reward farmers for producing pigs, or they just won’t do it. The evidence is obvious.
“We haven’t seen any new producers in probably half a dozen years,” said Middel.
“We just aren’t building new barns.”