Canada’s independent hog farmers are being crushed by a pricing system that short-changes them on pigs but pays processors and grocers top-dollar at the same time.
If it isn’t fixed soon, many of the remaining family hog farms will disappear, says the Canadian Pork Council.
“Something’s gotta give here, otherwise guys are going to be making some pretty tough decisions within the next couple of weeks,” said Rick Bergmann, CPC chair, in an interview.
In the meantime, the federal government needs to step in with emergency aid pronto, if it wants to avert the gutting of the sector.
“It’s quite overwhelming for a lot of guys.”
Chicago Lean Hog futures look poor for the coming months, locking in losses for most producers. But those aren’t the prices farmers actually receive when they ship pigs. If they are sold on the cash market, they can be $20 or more below futures prices today, revealing the glut of market weight hogs vying to find shackle space. Much pricing is based on formula contracts, which don’t tend to be as severely discounted, but when futures fall into loss positions for months on end, farmers relying upon them will find their equity sucked away and their future returns bleak.
At the same time, after initial production interruptions, which shut some hog slaughter plants and caused the hogs to back-up on farms, processors are almost all back on-line and raking in relatively high prices from grocers and retailers. Grocery stores, after holding meat prices mostly stable during the early panic of the pandemic, as they worked through earlier-priced pork from the processors, have in some places been raising prices, compensating them for the higher priced pork they are receiving.
It has created a situation in which good demand for pork from consumers and grocers is not being reflected in the price received by farmers. To a large degree that situation is caused by a lack of slaughter capacity to handle all the hogs coming to market, and that’s unlikely to change any time soon, despite a surge in slaughter numbers so far this summer.
“Slaughter in June and early July was not high enough to absorb even half of the indicated year-on-year increase in supply,” said the CME Group-sponsored Daily Livestock Report of July 13. High and moderate prices in the year before COVID encouraged farmers to fill their barns, continuing a trend inspired by the building of major new slaughter plants in the U.S. Midwest. There are now many, many pigs being fed and coming soon to market.
“This suggests plentiful supplies for the next couple of months and imply hog slaughter to stay at 2.6 million into the fall in order to absorb it.” That will be a tough total to maintain if any disruptions come.
Some of the relative strength in futures markets compared to cash markets comes from strong export sales. China has been buying much pork as African Swine Fever has ravaged its domestic herd. However, with limited slaughter capacity and an excess of hogs, that offshore demand doesn’t trickle down to farmers these days.
Much of the hog production industry is insulated from most of the pain being felt by independent farmers. Those giant companies that own barns, marketers, processors and other parts of the value chain can share losses and gains amongst the various links. Farmers who rely upon more than hog production to pay their bills can dilute hog losses with crop gains, if they have a good crop or good crop prices. But for the family hog operation that stands alone, times are dire.
“It’s becoming very real for a lot of family farms right now,” said Bergmann.