Hog prices hit a wall

George Matheson has been raising pigs since 1982.

He’s seen good and bad times in Canada’s pork industry, but he’s beginning to lose faith in the future.

“For a young person, I wouldn’t encourage them to go into pig production. And those are pretty strong words from the chair of Manitoba Pork,” said Matheson, who farms near Stonewall, Man. “But unless the pricing system changes, if it was a child of mine — I’d say find something else.”

In mid-July, Matheson and representatives of the other provincial pork organizations in Western Canada had a teleconference with Maple Leaf Foods and Donald’s Fine Foods — which owns a packer in Moose Jaw, Sask. Maple Leaf operates Canada’s largest pork processing plant in Brandon, processing 85,000 hogs per week.

In the meeting, Alberta Pork, Sask Pork, BC Pork and Manitoba Pork told Michael McCain, chief executive of Maple Leaf, that the pricing system for hogs is broken. Producers are getting a slim piece of the pie and farmers are sick of it.

“It’s a system that isn’t working anymore for the producers in this country,” Matheson said.

“It’s still a profitable industry. But the profits just aren’t being shared…. Independent producers, that segment, has suffered far too long…. This is about as low as I’ve ever seen (farmers) as far as their attitude towards pork production…. You keep thinking there’s hope and there should be hope, but it never pans out.”

The groups asked Olymel to be part of the meeting, but the company didn’t participate. The producer organizations said they hope to speak with Olymel in the coming days.

Matheson pegged the cost of production at $185 per pig. Now, many hog farmers in Western Canada are receiving about $135 per pig. That’s a loss of $50 per animal and there’s little indication that things will get better.

“I would say from now until well into 2021, returns for a hog would be about $135.”

Prices are weak because the western Canadian price is based on the United States market, where hog processing plants shut down because of COVID-19, causing an oversupply of pigs.

“It really has to do with price signals,” said Darcy Fitzgerald, Alberta Pork executive director.

“The pricing sends a signal to the (American) farmer, we don’t have enough capacity… so the price goes down. But in Canada we have the exact opposite (situation). We don’t have enough pigs, to begin with, to go into the plants. We’re telling farmers to quit producing but we’re… not producing enough.”

Alberta Pork and the other provincial groups told Maple Leaf and Donald’s Fine Foods that the connection to U.S. prices has become dysfunctional. They want processors to incorporate the U.S. Department of Agriculture cut-out value into the price paid to Canadian farmers. The USDA tracks the value of pork loins, ribs, butts and other cuts of pork.

“They recalculate it back into a carcass value… based on those meat cuts. That gives you an idea of perhaps the wholesale value of that carcass,” Fitzgerald said, explaining it’s an estimate of packer returns on a pig.

Quebec has already adopted such a pricing system. Last year, Quebec legislated a pricing formula where packers must share some of the cut-out value with producers.

“We see Hylife moving that direction, as well,” Fitzgerald said, referring to Hylife Foods, which operates a packing plant in Neepawa, Man.

“There’s about 40 percent of the pigs in Canada, now are operating under a cut-out value system. They use price and part of the cut-out, to (set) value.”

Maple Leaf isn’t ready to adopt such a system, but it is offering a short-term bonus to producers. Farmers who sell to Maple Leaf will receive an additional $20 per pig, for a period of 13 weeks.

Donald’s Fine Foods will offer a minimum floor price, for four weeks, and will look at other options for the future.

The moves are welcome and will help offset losses but a more permanent fix is needed, Matheson and Fitzgerald said.

A report from the western pork organizations, published July 17, said hog farmers have lost a huge amount of money and will continue to bleed money in the near future.

“Over the past five years a producer with a 600 (head farrow to finish) operation would likely have lost approximately $1 million as the value per pig received was below the average cost of production… most of the time,” the report says. “The same producer is looking at a loss of over $400,000 over the next 10 months.”

Those numbers explain why hog farmers are getting out of the business.

“We’re losing so many independent producers. We’re even seeing (Hutterite) colonies exiting the pork industry. Which is really… unheard of,” Fitzgerald said.

Pork export data suggests that packers can afford to pay more for pigs. About 70 percent of the pork produced in Canada is exported and the percentage is even higher in Western Canada:

  • Exports were worth $3.8 billion in 2018 and $4.2 billion in 2019.
  • Export volume was the same in both years, 1.26 million tonnes.

If packers received $400 million more in revenue, for the same volume of product, it indicates they’re making a profit.

If the pricing system isn’t fixed, soon, Western Canada could have a very different hog industry. It might become vertically integrated, where a few companies raise all the pigs, process pork and export it to the world.

Or, hog production could drastically drop.

“Finding a reasonably equitable method of sharing the value of the pig is fundamental to the long-term sustainability of the industry for both producers and packers,” the July 17 report from the western pork boards’ pricing committee says.

“The fact that the overall growth in the western Canadian hog sector is near zero and existing barn maintenance is at an extremely low level, suggests an industry in significant decline if not directing toward collapse.”

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