James Hofer ponders the same question facing other hog producers in Western Canada.
In an industry that continues to consolidate, he is asking himself what the future holds when it comes to marketing hogs.
Will there always be opportunities to sell on the spot market, or will independent producers need supply contracts with packers to survive?
“It will take time to sort out where we all fit,” said Hofer, hog manager for the Starlite Hutterite Colony at Starbuck, Man.
“The concern that some of the smaller producers and family farms have is being invited to the party.”
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Marvin Hayenga, a professor with Iowa State University’s department of economics, doesn’t think the spot market for hogs will ever entirely disappear.
But he cautioned that there will come a time when producers selling on the spot market will be “residual suppliers.” That means they will be the last people packers will turn to for hogs.
“If everyone is lined up with contracts, you know whose hogs are going to go first.”
The American pork sector continues moving toward long-term marketing contracts that link packers with production. More than half the nation’s hogs are raised under contract, Hayenga said.
In Canada, Maple Leaf accounts for 25 percent of the country’s hog slaughter capacity. The company earlier this year bought Schneider’s slaughter and processing facilities in Winnipeg. Maple Leaf is encouraging producers to sign contracts under its Signature Pork program.
Good and bad side
Hayenga did not speak against the trend toward contract production. He noted some of its merits for producers, including assured market access and the chance to offset risk by pre-selling hogs under contract.
“Some people just cannot handle the risk anymore. They cannot handle the risk of where the open market is taking them.”
But producers need to be vigilant as the trend toward contract production continues, he said.
With more hogs sold under contract, it will become increasingly difficult for independent producers to know whether they are getting a fair price on the cash or spot market.
Hayenga suggested universities and colleges should offer courses on hog marketing, including courses that help producers gauge the merits of signing contracts with packers. Marketing clubs set up by producers could also help.
Government might also have a role in helping producers learn more about contracting options. The United States Department of Agriculture soon will have a library of contracts posted on its website, Hayenga said, which will let hog producers study the various types of contracting options offered by packers.
As well, mandatory reporting of contracts and prices started in the U.S. this spring. In some cases, state legislatures already required that type of reporting, Hayenga said.
Producers concerned about hog industry consolidation should also think about banding together when negotiating with packers, he added, or create their own custom kill and market a branded product.
Another option is to target niche markets that demand certain traits, such as tenderness or an assurance the hogs were grown organically without the use of antibiotics.
Manitoba hog producers already have joined together in a significant way when it comes to selling their livestock.
The Manitoba Pork Marketing Co-op was formed following the elimination of single-desk selling. At least half the hogs produced in the province are sold through the co-operative, said president Gerry Friesen.
“I think as independent producers, the only way to survive is through collective marketing.”
Hayenga offered some hope that consolidation does not necessarily lead to a lack of competition among the major packers. He used the U.S. beef packing industry to illustrate his point.
“As long as one doesn’t like the others and is a maverick, you’re going to be in good shape.”
Hofer said Manitoba producers still have several marketing options, including packing plants in northern-tier states interested in Canadian hogs.
“Once the pigs are on the truck, you ship to a dozen different places. It will keep them paying a fair market price.”
But Hofer said contract production will become increasingly important in Western Canada. He is not alarmed by that prospect, and believes it could one day make prices more stable for the hog industry.
“I don’t think the processor is out to put the producer out of business.”
