At a recent meeting in Porcupine Plain, Sask., Florian Possberg was asked a question he didn’t expect.
Can I invest in your hog barn?
“That surprised me, after all the bad news we’ve had in the last year,” said Possberg, a major Saskatchewan producer who is expanding his operations.
Most investors, looking for a safe place to park their money, probably aren’t focusing on hog barns these days.
But Possberg said he sees the question he was asked in Porcupine Plain as a sign that some people still see opportunities in the industry.
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“A lot of the optimism has been breathed back into the industry with the return of (break-even) prices,” said Possberg.
“We’re seeing a level of interest from investors.”
Hog barns were a popular prairie investment through the mid-1990s. A wide range of economists, producers and governments argued often and strongly that the Prairies were perfect for hog production, and that returns from a well-run hog barn would be substantial.
Then, in late 1998, the bottom fell out of the market and many newly opened hog barns began taking huge losses.
Prices plunged to 40 cents per kilogram, well below the $1.20 to $1.40 break-even point. Though investors – many whom were not hog producers – had been warned about the hog cycle and expected prices to drop, they were stunned by the depth of the collapse.
“A year and a half ago we thought the worst case scenario was $1.10 a kilogram,” said Possberg, who was just as stunned as investors.
Now, they tend to be even more cautious because of the well-publicized problems in pork.
“When you talk to your potential investors, they always look at the what-if scenario,” said Possberg.
“What if things go to hell? And the definition of hell has changed. And that makes it a lot tougher for us.”
But Possberg said some investors who understand the pig industry have been impressed by its survival.
“We haven’t seen any major producers crash and burn. They’ve all struggled but we’ve survived, and that’s been a real positive for the industry,” said Possberg.
Another major producer who has also seen investors shy away from hog barns is Heartland Pork Management Services, which is Saskatchewan Wheat Pool’s pig production wing.
Just a few years ago the company wanted to quickly set up 20 hog production networks that would produce about 1.5 million pigs per year. It planned to have 80,000 sows in production.
The barns would be built in partnership with local farmers and investors.
In 1999, Heartland completed five barn complexes, all with farmer investors, bringing its total to seven. But according to Sask Pool’s annual report, these are likely the last of their breed for now, and the company is looking for different ways to increase its hog production. By the spring, it will be able to produce 330,000 market hogs, far below its goal of 1.5
million.
“Our long-term goal in the industry
hasn’t changed,” said Heartland head John LaClare in an interview.
“But definitely our short-term plans, in terms of what we are building this year and next year, have changed.”
LaClare would not specify how new barn projects could be financed, but said, “I wouldn’t classify any of them as easy.”
Possberg said he thinks many of the companies building hog barns have had more trouble with investors than he has because he works mainly with institutional investors rather than local residents.
Possberg said the past two years have been tempestuous for hog barn investors, but he thinks over the long run money will continue to be invested in prairie hog barns because it’s the best place to produce pigs.
“It really does make sense,” said Possberg.
