In the past decade I’ve spent a lot of time boosting my education in, and understanding of, risk management. Not only is it something I cover on a daily basis, but it’s also something that I simply find intellectually stimulating and applicable to daily life – in almost every way.
In fact, at lunch today I bored my wife with my long-winded comparison of how the lawyer-to-lawyer negotiations she is constantly involved in are similar to the way futures contracts operate in terms of convergence with the cash market.
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Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
Mostly I restrict my thinking to forward prices and the various methods farmers employ to minimize their risks while being able to take advantage of opportunities in the marketplace. But sometimes I try to think wider, more fundamentally, about risk issues beyond the basics of pricing.
That’s how I came to write the Special Report that’s in the October 21 issue of our newspaper about research into alternative hog barn systems that could offer a way to do without gestating sow stalls and many of the problems associated with liquid manure systems. I didn’t come to this as an animal rights activist or a hater of wet manure, but because my risk management antennae were twitching with intimations of a long, long-off risk that might never evolve into something real, but which – if it did – could destroy many hog operations and wipe out their operators.
And I thought now was the time to look at this, because I’m very hopeful about the future of the industry. As my lead-in story on the front page describes, some economists who have looked at worldwide competitiveness in hog production conclude that the Canadian West and U.S. Midwest are still the best places on the planet to raise pigs. This might shock and annoy long-suffering prairie hog farmers, who are still recovering from the brutal downturn of the past three years and can’t imagine a happy future for their industry here, but that’s why it’s worth talking to economists: they might be described as practitioners of the “dismal science,” but they can take the long view, and the long view right now is much more optimistic than the outlook amongst hog producers today.
So, if the future does get brighter, and hog producers decide they are going to commit to it, what are they likely to do? Build barns. That’s what always happens. Some will want to expand production and need new barns. Others will have barns that have worn out and need to replace them.
Almost no one on the prairies has built a new barn in the past three years. A couple of years from now, when I would expect optimism and the financial ability to build barns to return, the newest barns will be five years old. A lot of barns will be more than 10 years old. And lots will be 20-plus years old. So there could be a new slew of barn building.
But a barn is a multi-hundred thousand dollar investment on the low end, and a multi-million dollar investment for most commercial producers, so it’s an investment that needs to be made carefully. No one wants to carry that amount of debt – and much of future building will rely upon debt – for a barn that won’t be able to live out a natural lifespan of 20-25 years.
But that lifespan, my risk management antennae communicated to me, might not be possible if something forces a fundamental redesign of barns part way through their years of mortgage payments. And that something would most likely be regulations imposed by governments defining the treatment of gestating sows, and the treatment of manure. There are loud and active campaigns in Manitoba and elsewhere to ban the use of stalls for gestating sows, and already governments like Manitoba’s have brought in tough manure spreading regulations that are a severe challenge to producers.
Some producers might just laugh off the animal rights antics, like those of Pamela Anderson or the folks who released a simulated pig at the legislature a couple of weeks ago. But it doesn’t matter whether their antics are silly or if the activists are wrongheaded. As we’ve already seen in Europe, if the public gets wound-up about an issue like sow stalls, the politicians can act rather severely. After all, rural votes don’t tend to win elections. A number of U.S. states have already banned sow stalls – none with large hog industries, I seem to notice – and more campaigns are in play. It would be foolhardy right now to assume that sow stalls won’t face a significant challenge here too sometime.
Similarly, it would be rash to think environmental demands and regulations will lighten in the future. What Manitoba’s Red River valley farmers are facing now will likely be felt in the rest of English-speaking Canada some time.
So with those forces in mind, and with my optimism about the industry expanding again in a few years time, I thought I should look into whether the stall-free systems that might be required, or the dry manure systems that might become inevitable, would actually be economically viable. That’s a crucial question to answer, because any farmer planning to invest hundreds of thousands or millions of dollars in new barns needs to know what his options are. If there is a viable alternative to sow stalls and liquid manure, he’s got to know that. And that can’t come from lightweight, pie-in-the-sky advocacy of alternative system promoters. It’s got to come from hard-nosed production and economic research that looks at real world examples.
I was delighted to find that this kind of research is already being done at the University of Manitoba. Over the years I’d heard about work they were doing at their Glen Lea research centre, but hadn’t realized how significant it was. They’ve been looking at commercially-valid stall-free and stall-light systems for years, and new support, funding and structures have recently given them the ability to expand their research dramatically. At the Prairie Swine Centre, research into animal behavior dynamics is being conducted on the very concrete issues of open-housed sows, such as what particular design of pen makes the sows happiest, most content and most productive, and how solid concrete floors affect sows’ feet compared to slatted floors.
And elsewhere, like at the University of Minnesota, detailed research is being done on the economic impact of any forced change to open housing in the U.S.
All of this gives me hope that a few years from now, when farmers are once more in a mood to build, they will have enough concrete research – based on years of work – to know what their alternatives truly are. Right now there’s a lot of prejudice amongst producers against open housing, because everyone remembers how crazy and violent Dad’s sow pens were during the daily feeding. And no one wants to think about solid concrete floors and straw that would require labour to clear out. But the research being done now should dispel a lot of those prejudices, and allow farmers to contemplate a system that – if proved economically viable as well as productive – could relieve them of those two regulatory risks that could snuff out their future.
To me, the key value of this kind of research being done now was summed up by the view of a highly educated hog barn operator I spoke to recently. He felt open pens were impossible to operate humanely and profitably for gestating sows because of his memories of the family farm he grew up on, where the sows fought like dogs on a daily basis. He said if had to build another barn in the future, he’d build one with stalls, because he knows that works. And he said that he was old enough that when it came time for him to renew his barns, he probably just wouldn’t bother. He’d simply retire.
If research can show that open housing and dry manure systems are viable, younger producers might not have to face that terrible choice of either building a barn system that will be immediately faced with regulatory dangers, or abandoning the business. If research can show these systems will work, then maybe that will be the key to the survival of the industry in this country. They might be able to build and farm in peace and profitability. And we might still have a hog industry 30 years from now.
There were a lot of “if”s in the paragraph above. That’s because this research is not completed. Indeed, in many ways it’s just beginning. But the fact that this early work is suggesting that open housing and dry manure are not insurmountable challenges provides some hope for facing off future regulatory challenges, if they choose.
We all know what the regulatory risks from humane and environmental concerns are. What we don’t know yet is whether that risk can be hedged out by employing alternative production methods. But the research has begun that should let us know. And for that I think producers should be thankful.
