Industry observers are worried processors could soon be scrambling for hogs as two of Canada’s largest producers tipped over the financial ledge last week and governments refused to ride to the rescue.
“Obviously the challenge that we currently face is producers are exiting the business,” Jason Manness, director of procurement at Maple Leaf Foods said late last week. “We expect less hogs in 2013, but only marginally lower at this point in time.”
Maple Leaf raises its own hogs to supply about 20 per cent of its slaughter and has not reduced hog production or pork-processing rates in spite of high feed costs, Manness said.
“HyLife is also challenged but, together with our financial partners, remains confident and optimistic with regards to the future of our industry,” Don Janzen, president of the La Broquerie-based HyLife Foods Ltd. said in a statement. HyLife, Canada’s largest hog producer, produces around 1.4 million hogs and operates its own processing plant at Neepawa.
Niverville-based Puratone Corp., the third-largest producer in Manitoba and fourth largest in Canada, filed for bankruptcy protection last week, days after Saskatchewan’s Big Sky Farms was placed in receivership. Both companies will continue to operate for now.
A court-appointed monitor will have 30 days to help Puratone find new investors or sell assets, a process that won’t be easy for a company owing nearly $100 million amidst market conditions that make it impossible to operate profitably.
“Everyone, even the most efficient operations, is losing money,” said Perry Mohr, general manager at h@ms Marketing Services.
Puratone officials referred all inquiries to a press release.
In it, Puratone president and CEO Ray Hildebrand pointed to ongoing market challenges, including the drought in America’s Corn Belt as reasons behind the move. But the company, which produces a half-million hogs per year and employs about 300 people, has been struggling to restructure for years, selling off its poultry feed operation, cutting staff and winding down U.S. operations.
Big Sky Farms, which produces one million hogs annually or about 40 per cent of Saskatchewan’s total production, also blamed high feed costs brought on by the U.S. drought. The company, which was established with Saskatchewan government backing in 1995 and is noted for pioneering the multi-side production model, filed for bankruptcy protection and restructured in 2009 during the last major downturn.
Gary Stordy, spokesman for the Canadian Pork Council said the difficulties facing two of the country’s largest producers will shake the confidence of producers, investors and creditors left in the business.
“It’s ironic, because there is feed available in many parts of Canada, but we are an integrated feed market, where what takes place in the states really has a ripple effect up here,” he said.
In lieu of cheaper feed, higher pork prices and a weaker Canadian dollar would assist struggling producers, but neither are on immediate horizon, he said.
There is some hope in the long term. “Pork futures for mid-year are actually looking positive, relative to the pork prices right now,” said Stordy, adding futures for July 2013 are at about $1.74 per pound.
Industry officials worry fewer producers will result in less processing infrastructure, and less infrastructure results in fewer producers. He said Maritime provinces faced a similar issue a number of years ago.
“And those provinces went through a rapid decline as producer confidence in infrastructure was lost,” Stordy said.
Lack of access to additional credit is also hampering some producers’ ability to weather the storm.
“The resiliency has pretty much been wrung out of the hog industry at this point,” said Kevin Grier, a senior market analyst with the George Morris Centre.
Years-long barrages of issues and obstacles, including an H1N1 scare, a strong Canadian dollar and country-of-origin labelling have exhausted the industry’s ability to cushion economic blows. Even a year-and-a-half-long upswing in 2011 and early 2012 wasn’t significant enough to protect industry from the current crisis, Grier said.
Producers looking to the federal government for assistance won’t find solutions there either.
During a news conference last week, Agriculture Minister Gerry Ritz said Canada will not pay farmers to cease hog production, as it did three years ago.
In 2009, Ottawa offered hog farmers a total $75 million to stop production for three years, due to high feed costs and weak prices.
“I don’t think that would be renewed,” Ritz told reporters from Whitehorse, Yukon, where he was meeting with provincial agriculture ministers about the nation’s farm support programs.
“I don’t think the hog sector has asked for anything like that at this point. What they’re asking for is the ability to move into that next five-month cycle that’s starting to look positive (for prices).”
Ritz said he would meet with banks in the next week in an effort to “stop the hemorrhage” and to assure lenders the hog industry has a bright future.
Manitoba’s Minister of Agriculture, Food and Rural Initiatives also spoke to the issue from the Whitehorse meeting, but said little. He has yet to sit down with the Manitoba Pork Council.
“We definitely value the hog industry here in Manitoba. At this point in time we’re not closing the door,” said Kostyshyn. “We’re going to have discussions and try and have some alternative ideas and suggestions on how we can get through this tough scenario.”
However, he would not comment on the possibility of a bailout.
A federal task force has been struck to examine feed costs, but some in the hog industry feel neither level of government is up to speed on the depth of the crisis.
“Government is working with delayed figures,” said Karl Kynoch, chairman of the Manitoba Pork Council, adding the council’s figures show industry losses of $150 million in Manitoba alone over the next six to eight months.
“Things are going to get worse, that’s what we’re heading for,” he said, adding many producers are slowing production and emptying barns.
Other livestock industries, such as dairy and poultry, receive protection via supply management, but the odds of the pork industry moving towards that direction are slim.
“The supply-managed commodities do provide producers with a much more stable level of income, and one could argue, profitability,” said Mohr.
But it would take a concerted demand and vast reduction in hog numbers to make such a system work in Manitoba, he added.
Mohr said a switch to supply management would require at least an 80 per cent reduction of hogs in Manitoba, or 40 to 50 per cent nationwide.
“I would suggest it is not a likely solution to this situation,” he said.