Alberta hog producers can now buy feeder hogs through feeder associations with only a five percent down payment, similar to what cattle producers have been able to do.
The Alberta Hog Feeder Association opened its offices in Fairview, Alta., Nov. 29 after almost a year of lobbying the provincial government to make changes to the Feeder Association Guarantee Act.
Many producers believe the changes will reduce the number of Alberta hogs finished in the United States because of the lower cost of feeding pigs in the province.
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“I think it’s going to encourage growers to feed pigs because it frees up working capital,” said Don Erno of Sexsmith, Alta., the association interim board chair.
In the past few years when the price of finished hogs has been low, it has been difficult to convince bankers to finance the purchase of feeder pigs.
Banks often require up to 30 percent down payment when buying pigs. Few producers had the financial ability to build hog barns and buy the hogs to fill them, said Erno.
Now, through the feeder association, hog producers need only a five percent down payment to buy the feeder pigs.
“The feeder pig producer can borrow up to 95 percent of the value of his feeder pig through the feeder association,” said Grant Mann, head of the Peace Country Pork Management Group, which helps farmers who want to integrate hog finishing barns in their operations.
Erno said the ability of hog producers to access cash will have a huge impact on their ability to expand. He believes the cattle industry wouldn’t be as large as it is without feeder associations.
“It provided a vehicle to allow expansion and to allow the cattle producer to become more established in the province. On the hog side it will do the same thing,” said Erno.
For 66 years, cattle producers have been able to use one of the 61 feeder associations in Alberta to buy cattle with only five percent down.
Regulations to change the feeder association act to include pigs were approved by the Alberta cabinet Oct. 18. Under the act, the provincial government allots $55 million to the feeder associations as government guarantees for feeder loans.
Cattle producers are using about $52 million of that to buy cattle. Hog producers will be able to eventually access $3.5 million, although in the beginning they will have access only to $1.5 million in government guaranteed loans.
Mann said the $1.5 million could be turned into $10 million in producer loans, which translates into loans for 460,000 feeder hogs, or about 14 percent of the province’s feeder hog business.
The maximum $3.5 million in government guaranteed loans would be turned into $23 million available to hog producers or enough for 30 percent of the feeder hogs produced in the province.
Mack Rennie, general manager of the Western Hog Exchange, said the impact of the associations could be huge.
“It’s a way to allow some producer into the industry without having to put up a lot of money up front,” said Rennie. “It’s going to allow some animals to be finished in Canada as opposed to sending all those babies to the United States for finishing.”
About seven million Canadian hogs are shipped to the U.S. for finishing. If the latest anti-dumping duty remains in place, it may increase Canadian finishing and slaughter.
“It’s an opportunity to keep them home,” Rennie said.
The Alberta Hog Feeder Association board of directors is now made up of five producers from Alberta’s Peace River region, but the association isn’t limited to hog producers in the Peace.
Under the rules each feeder association must have a local supervisor who counts inventory before animals are paid for. Five people from across the province have trained with Frank Marshall, a veterinarian specializing in hog production, on the proper protocol needed for high health hog barns.
The record keeping and clerical staff will be in the Fairview office. Myers Norris Penny is the group’s accounting firm and Keith Wilson is the lawyer. ATB Financial, the bank that handles most of cattle feeder loans, is making a proposal to provide financing to the hog feeder associations.
Unlike the cattle industry, Mann and Erno anticipate there would only be one or two hog feeder associations in the province because there are fewer hog producers: only 1,200 with hogs compared to 37,000 cattle producers.
While existing cattle feeder associations can change their by-laws and regulations to include pigs, Mann said they don’t recommend a mix of cattle and pigs in the same association because of the different production practices.
There are also other differences. Cattle bought with feeder association money can be kept for a few months or more than a year, depending on the markets. Hog producers can fill a feeder barn three times a year. They know the date the animals go into a barn and can predict within days when they will be sold.
“There’s no holding it. When it’s ready for market, it’s ready for market,” said Erno, who expects the feeder association loans will act more like a revolving line of credit.
