Prairie pig producers are being spit-roasted by the exchange rate and American import duties, but they maintain a wary optimism.
“We can compete with the Americans dollar for dollar, so any better exchange rate is a benefit for us,” said Lauren Wiebe, a Grunthal, Man., weanling producer.
American duties imposed in October on imports of Canadian hogs couldn’t have come at a worse time for Canadian producers.
Many hog producers built expensive new barns in recent years and carry a huge bank debt.
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The income needed to service that debt can be hurt by currency swings. When the Canadian dollar appreciates against the U.S. dollar, the farmgate value of hogs falls.
“Farmers who built (hog barns) in the last three or four years probably financed their operations with a much lower dollar and a pretty high productivity rate,” said Wiebe.
Borrowing $8 million for a barn with the expectation of a 63 cent US Canadian dollar looks pretty bad in retrospect if the loonie climbs to 83 cents, where it has been lately.
Hog prices, set in the U.S., have roared higher in the last year, but the stronger Canadian dollar reduced profits in this country.
And when prices plunge, as they inevitably do in the typically four-year pig price cycle, the red ink is likely to become a torrent.
Bracing for the worst
The 10.63 percent duty on most Canadian hogs sold to U.S. buyers exacerbates the situation. If that duty becomes permanent in April, prairie farmers could be hurt.
Weanling exporter Dan Klippenstein of Niverville, Man., said the duty is a make-or-break issue for some producers.
“It eats the profit out,” he said.
“In the long term, it’s not sustainable. Ten percent is a lot of people’s long-term margin.”
Economists say businesses should offset currency increases by boosting productivity. But many new Canadian hog barns already run at peak efficiency, so there may be no easy way to compensate for a rising loonie.
“You keep seeing what you can do to improve efficiency, and productivity is improving, but I don’t know if it’s going to make up for the exchange rate and the duty,” said Klippenstein.
“It’s a pretty tough thing. Things are pretty fixed.”
Wiebe said he is lucky to have an operation that was financed 12 years ago, when the Canadian dollar was close to where it is today.
For years he enjoyed the benefits of a weak Canadian dollar, and its present surge has merely returned the exchange rate to where it was.
In the meantime, his barns’ productivity has soared, from 20 pigs per sow per year to 24, making his operation much more profitable. That’s why he thinks he can compete with American producers even if the loonie surges past 90 cents and approaches parity.
Klippenstein is confident about the outcome of the duty dispute and about his own operation’s future, but he thinks the Canadian industry overall will stop growing because of the currency situation.