Hog producers see profits, but tougher times ahead

U.S. production rebounding after PED | Analysts tell producers to increase management efficiency and prepare for tighter margins next year

Lower feed costs and higher hog prices mean this year should be one for the record books, says an industry official.

However, there are signs that smaller margins are on the horizon.

“I’ve been in the industry since 1975 and this is far and away the most profitable year we’ve had over that time period,” said Florian Possberg, president of Polar Pork Farms in Saskatchewan.

“What really is phenomenal is the contrast from what we saw from between 2007 and 2013, where we had year after year of real struggles to be viable. This 2014 has been a real change for us.”

Possberg, who also chairs the Saskatchewan Pork Development Board, said he’s seeing profits of $60 to $80 per head, up significantly from a string of years when the industry saw losses of as much as $40 per head and a declining herd size.

Hog numbers are also up slightly as producers capitalize on a larger-than-normal ratio of hog to corn prices, stemming partly from last year’s outbreak of porcine epidemic diarrhea virus in the United States, which killed millions of piglets and hurt supplies.

Corn prices have fallen, and analysts say the futures market suggests producers will continue to see lower feed costs for another two years.

However, there are indications that American production is rebounding.

Signs of PED on American farms are down this fall, Justin Roelofs of American lender Agstar Financial Service told the Saskatchewan Pork Industry Symposium in Saskatoon last week.

“A lot of truck washes were built, a lot of dedicated trailers, a lot of time was put in to keeping these sow units clean,” he said.

“If that continues, it could affect the market in the next 30 to 60 days if the market picks up on it. We’re going to have more pigs next year for sure, whether it’s on the expansion that’s on the horizon or whether it’s with less PED.”

Roelofs expects an additional 150,000 to 180,000 sows over the next 12 to 18 months in the U.S.

“These margins are going to be much reduced in 2015 and we really do run the risk of seeing negative margins in 2016 if we see a large increase in production,” said Possberg.

“That’s typical of our hog industry. We’ve always seen cycles. We need to prepare for tough times and get efficient.”

Farm Credit Canada recently said it expects Canadian pork production to increase six percent over the next four years.

Possberg said high production costs make new site construction difficult. He’s seen previously empty barns come back into production, as well as larger pigs.

“We’ve seen producers being as innovative as possible to get as many pounds of pork out as possible to benefit from the profitability.”

Labour is another hurdle, both in hog barns and packing plants, where operators are now working in a new regulatory environment for temporary foreign workers.

New trade agreements with South Korea and Europe that will lower tariffs and provide greater market access to Canadian exporters have been touted as positive for the meat sector, but there are reports of pork facilities running at less than capacity.

“We aren’t able to ramp up processing to take advantage of those,” said Ron Davidson of the Canadian Meat Council, which has been lobbying hard against changes to the Temporary Foreign Worker Program. Those changes have capped the number of temporary foreign workers at a workplace and reduced the time they can stay in Canada.

“In fact, right now we’re contracting production at some of the plants in this country.”

Davidson said there are hundreds of empty jobs in Canadian packing plants.

“Virtually every single expansion of production, particularly in Western Canada, is dependent on temporary foreign workers to ramp up production to expand,” he said.

“Then as time goes on, these temporary foreign workers have been converting into permanent residents and becoming Canadian, if you will.”

Davidson said empty production lines mean that packing plants do less deboning and export more bone-in products.

He also said offal meat products are sometimes rendered instead of processed.

“These two areas are where profitability and competitiveness are made in the industry. It’s a very narrow margin industry,” he said.

“We need to do that value added (processing). We need to harvest those offals and specialty meats, otherwise we aren’t going to be competitive in the long term.”

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