News that both Manitoba’s Puratone and Saskatchewan’s Big Sky Farms are broke and going through bankruptcy highlights three things to me:
1) The hog industry is very fragile;
2) The industry’s problems pose a grave threat to all prairie grain growers;
3) No one should be taking this essential, value-added industry for granted.
A bit on each point:
1) Fragility: The industry lives and dies on the spread between feedgrain prices and slaughter hog prices. Those of course will move around, and result in various levels of profit and loss, but sudden large swings can be deadly, especially if both go in the wrong way at the same time, like now. Hog farmers can become suddenly squeezed and with such big operations, which are the norm today, the losses can become massive overnight. I don’t know specifically why Puratone and Big Sky fell, but these kinds of squeezes will exacerbate any underlying problems a company has.
Read Also
Agriculture needs to prepare for government spending cuts
As government makes necessary cuts to spending, what can be reduced or restructured in the budgets for agriculture?
Back in the late 1990s, some “This Time Is Different” believers declared that the hog cycle was dead. That was dumb and wrong back then and since that time we’ve seen hog price volatility that’s no less extreme than in the past. But with farms now employing much more debt to build modern, productive facilities, there is little room for sudden loss-making periods. The industry is very, very fragile and keeps getting broken.
Personally, I think a lot of the disasters can be avoided by farmers who hedge-out well into the future their feedgrain and slaughter prices. Farmers can lock-in profitable margins most of the time, because disasters develop suddenly, become extreme, then end, so a futures or options based hedge should be able to cover most crises before they arise. But few listen to me.
2) The industry’s problems are a threat to grain farmers: Hog farms buy vast amounts of prairie-produced feedgrains. If those farms aren’t there, feedgrains farmers grow will have to be shipped further for a bigger price discount. The voracious appetite of prairie hogs for feed wheat, corn and other feedgrains provides a handy local market for many farmers – either directly or indirectly through local feed formulators – and forces other buyers to pay better prices. Without hog barns, one crucial support for decent crop prices will be gone. If the prairie hog industry shrinks too greatly – and it has been significantly shrinking – farmers will see bigger discounts of their grains to U.S. grains.
3) No one should take the hog industry for granted. I’ve always been pro-business development and delighted to see people out in the prairie countryside creating jobs and a producing a commodity that can support big processing plants on the prairies. It seems a reasonable and natural way to look at the industry which, after all, doesn’t need to be here at all. But for the past almost-18 years I’ve been at the Producer, I’ve been repeatedly surprised by the visceral hostility some farmers and other folks have for the modern hog industry. Some comes from nearby grain farmers who don’t like smelly pig poop to be in their neighborhood and is really just a NIMBY thing. Some comes from operators of small, basic hog operations who don’t want to change, expand and improve their production methods but who expect to be able to continually make a profit regardless. And some comes from the lefty-socialist-romantic type that enjoys envisioning farms as Ma and Pa Kettle operations that are small, hardscrabble and which employ no modern technology. The latter group despises the high-tech, professionally managed, highly complex multi-million dollar operations that are now generally required to make a family-supporting profit.
Among some in our society there is a notion that business will always just be there, and they take that view with the hog industry. They think hog farmers will just continually stumble through but still be there running their barns years from now no matter what happens, so they think there’s really no down side to bashing away at the hog industry for alleged inhumane practices or for falsely alleging its the main source of environmental problems. These people never seem to realize that they’ll be worse off if lots of barns disappear and the operators move on to other things – or off to different provinces, states and countries. Sometimes Manitoba’s NDP provincial government has seemed to have this attitude, and has unleashed a string of constricting regulations and rules and has helped encourage the false perception of the hog industry that it is the cause of water quality problems in Lake Winnipeg. Ironically, it was Saskatchewan’s NDP government that worked the hardest on the prairies to get more hog barn development in its province. In Saskatchewan in the 1990s, when I lived there and covered the industry, no one in the Romanow government took the creation or existence of value-added jobs in farm country for granted. They appreciated and supported the hog industry. (One of the things they appreciated and supported was Big Sky, so that support didn’t necessarily lead to eternal success.)
With big hog farm companies probably going down in Saskatchewan and Manitoba, we could soon get some solid evidence of how important the industry is to us all, but not in a way any of us would like.
