The rising Canadian dollar is largely to blame for financial problems in the hog industry, say producers both past and present.
They acknowledge the more recent factors of the U.S. drought and high feed costs that are resulting in losses of up to $50 per pig, but few let the 65 cent dollar of the past go unmentioned.
“It’s been said so often it’s almost a cliché, but that’s the reality,” said Joe Kleinsasser, a former Sask Pork chair from the Rosetown, Sask., area.
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“You sell your pigs in American currency and as such you will get 35 cents on top of every dollar. You factor in 35 percent and all of a sudden it becomes huge.”
The 65 cent dollar built most of the infrastructure that’s at risk today as two of the country’s largest operations look for new ownership and a way out of their cash flow crisis.
Big Sky Farms of Humboldt, Sask., has 42,000 sows, while Puratone of Niverville, Man., has 29,000 sows.
Marcel Hacault, who had 100 sows on his farm near Niverville until 2005 and still keeps an eye on the industry, said a recent conversation with others in the business focused squarely on the dollar.
“With a dollar that’s on par or slightly above the U.S. right now it doesn’t make it feasible to export,” he said.
“At an 80 cent dollar we probably could compete, but take away that 20 percent margin (and) it’s pretty tough.”
Yet much of the Canadian industry is based on exporting isoweans and weanlings to the United States for feeding and finishing.
Paul Ulrich, who has a 400-sow farrow-to-finish operation near Spalding, Sask., said that works to a point but becomes an issue when prices drop and American buyers don’t want Canadian pigs.
“The way they tell you they don’t want them is to put the price down,” he said. “Then all of a sudden you can’t make any money.”
He’s watched many producers, particularly those producing weanlings, leave the industry over the past few years as the financial struggles became too much to handle.
Selling finished animals to Thunder Creek Pork in Moose Jaw, Sask., at least earns the Ulrichs the market price. As well, the family’s grain operation the market provides feed for the hogs at a lower cost.
Robbing Peter to pay Paul isn’t exactly a blueprint for success, but it is keeping operations like the Ulrichs’ alive for now.
Ulrich said the situation has to turn around by spring.
“The cash flow just isn’t there,” he said. “It’s difficult to keep going.”
Kleinsasser said in some years pork was the economic backbone of the Hutterite colony where he lives. The colony formed in 1969 and had 400 sows when it recently shut down its hog operation due to labour shortages.
He believes changes to the traditional hog cycle are also at play. In the past it allowed smaller producers to enter and leave the industry more easily during good and bad economic times.
“Supply and demand adjusted itself accordingly,” he said.
“Those dynamics are no longer in play. Even for us, and we were not big, it would have been pretty tough to shut down a barn. You take a corporate unit that produces a million pigs a year, well, it is clearly impossible.”
Kleinsasser said in 1998 the industry was just starting to transform into the larger operations. It was a “horrendous” time for the hog industry and producers were essentially giving pigs away. However, the downturn lasted only a short time.
The current crisis started in 2007 and continued through 2010, he said.
“By 2011, it was starting to turn around but there was so much equity drained from the industry,” he said. “I don’t care if you had two years of making money, you weren’t even coming close to what you had lost.”
He said he disagrees with those who blame the large, corporate model for financial issues. Big or small, it’s the ratio of debt to equity that matters, he said.
Size is a more critical factor when it comes to government assistance. More recent programs capped the amount a single operation could receive during tough times, and it usually wasn’t enough for the large barns.
Ulrich said that the programs can also work against the smaller operator because their enterprises are mixed. A strong grain enterprise can offset a weak hog operation and leave the farmer without any assistance.
John Germs, a Saskatoon producer who left the industry several years ago, said he saw many government programs come and go during his 32 years in the business. He said the hog industry should have seriously looked at supply management.
“There should be no reason why a producer should have to ship all that valuable, good food out the door and receive a compensation package that literally was inadequate for many, many years,” he said.
“Over the years, 50 percent of the time we broke even, 25 percent of the time we made some money and the other 25 percent of the time we lost our shirt.”
