Hog packers expected to continue gobbling up each other
More consolidation is in store for the Canadian hog packing industry if the forecast of an industry watcher proves correct.
Darryl Hutchings, of Plan 2000 Management Associates, told the Saskatchewan Pork Industry Symposium that a dog-eat-dog struggle is rising in packer land.
Operating at full capacity with one shift, Western Canada’s hog plants can kill nine million hogs a year. The problem is there are only 7.4 million hogs available for slaughter.
If the big, modern plants move to two shifts as they want to, there will be capacity to kill 13 million hogs.
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Hutchings, who in the past worked for Burns and XL Foods, said the struggle for hog supply will cause casualties. Only the biggest companies and small specialty packers will survive.
The two giants are Smithfield and Maple Leaf. The story so far is that Smithfield, the largest hog packer and pig producer in the United States, acquired Schneider’s in Winnipeg and bought a big interest in Mitchell’s in Saskatoon.
Maple Leaf bought Burns and Gainers and built a huge kill plant in Brandon.
Smithfield and Maple Leaf have billion-dollar sales figures, extensive further-processing operations and heavyweight retail brands.
The second tier companies are Fletcher’s, with its big kill plant in Red Deer, Alta., and Springhill with a plant in Neepawa, Man. Their pockets aren’t nearly as deep as the industry giants.
The key is Fletcher’s, Hutchings said.
In its recent third quarter report, Fletcher’s noted problems in getting hogs and announced direct investments in the province’s hog barns to boost production.
It has bought pork processors and plans to build a bacon plant in
Edmonton.
But Hutchings believes it will eventually be gobbled up by an industry giant.
He speculated that if Maple Leaf buys Fletcher’s, it would dominate the market. If Smithfield buys it, then it and Maple Leaf will continue to slug it out for dominance. Smithfield would probably close the kill floor and expand the processing line at Mitchell’s in Saskatoon, he said.
The wild cards are other big U.S. packers, ConAgra and Cargill’s Excel, which might bid for Fletcher’s, Hutchings said.
For hog producers, consolidation means stable but lower prices.
The big price swings will moderate, but packers will pressure farmers to produce at lower costs.
That will encourage larger production units with greater economies of scale and will make it harder for small producers to continue.
