Good times for hog processors are usually poor times to open a new hog processing plant.
That’s why a prominent American agricultural economist thinks Schneider Cor-10-P. may delay expansion of it’s Winnipeg plant for some time.
Ron Plain of the University of Missouri said North American hog processors have been squeezed lately by tight margins.
Hog production has dropped 2.5 percent from 1999, and processors have been forced to bid up prices to attract enough hogs.
But higher prices have encouraged farmers to expand, he said, which will eventually drive down prices.
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Processors’ margins widen as they get ample volumes of hogs at lower prices.
Plain predicts good times for processors during the next year or two. But a hog processing plant coming on stream at the end of the large supply-low price part of the cycle can find itself in trouble.
Processors prefer to start operating new plants toward the end of a hog price peak, knowing ample supplies and lower prices lie ahead.
Ramping up during a price valley means a new plant will have to spend money chasing hog supplies.
Plain said the industry won’t likely see packers adding capacity in 2003, unless they shut down other plants to cushion the blow of shrinking supplies.
He said processors typically open new plants in late summer as weekly kills become larger.
Plain thinks the main factor determining the future of Schneider’s expansion plans will be the attitude in Manitoba toward the hog industry.
From the news he hears, it’s getting harder to find sites for barns in Western Canada because of protests from rural residents.
“If it doesn’t look like hog numbers are going to expand sufficiently, there’s no reason … for Schneider to build now,” Plain said.
Meanwhile, Manitoba farmers continue to send truckloads of hogs south to feeders and packers in the United States because the U.S. industry offers better prices.
“It’s really pretty simple,” Plain said.
The U.S. dollar is strong, and U.S. packers are more efficient. They can kill and cut up hogs cheaper than Canadian plants, despite efforts made by packers such as Maple Leaf to reach economies of scale.
