A severe drought in the United States and increased Chinese restrictions on pork imports are casting a long shadow over Manitoba’s beleaguered hog industry.
The drought, which sent feed prices skyrocketing last year, continues in the U.S. Corn and Soybean Belt, despite improved precipitation this winter. More than half of the continental United States is in a state of drought, following near-record dry conditions last summer.
Timely spring rains are urgently needed to ease feed prices and provide relief to financially squeezed hog producers as they struggle to regain their financial footing, a producer meeting last week was told.
“It’s critical, given current fundamentals in the hog market, that feed prices get down to more reasonable levels. Otherwise, the profitability of the hog industry will continue to be challenged,” said Perry Mohr, general manager of h@ms Marketing Services.
Meanwhile, China’s latest action against ractopamine, a feed additive commonly given to North American swine, further increases market uncertainty for pork producers.
China last month announced it would stop importing U.S. pork, effective March 1, unless it is verified ractopamine free by an independent third party.
China has had a zero-tolerance policy to ractopamine, a growth promotant sold under the brand name Paylean, since 2006. Its latest move to demand third-party verification adds further uncertainty to an already-struggling industry.
It’s unclear if China’s action could affect pork from Canada. Some Canadian packers require ractopamine-free hogs; others do not.
But Tyler Fulton, risk management director for h@ms Marketing Services, told the meeting China’s move could seriously disrupt markets. He said prices could decline by $10/cwt if U.S. sales of pork to China were halted for five months.
Earlier in February, Russia announced a ban on U.S. meat imports because of ractopamine.
Trade woes and feed prices are two of many issues affecting Manitoba’s long-suffering hog farmers.
The industry continues to experience the effects of the U.S. country-of-origin food labelling rule, which severely curtails livestock exports. Live hog shipments from Manitoba to the U.S. were down over 20 per cent in 2012, mainly because of COOL.
Low market prices and a strong Canadian dollar depressing exports, in addition to feed costs and trade issues, have produced the biggest shakedown in the industry’s history. Producers have closed barns and left the industry in droves after losing $30 or more per hog over the last five years.
According to Statistics Canada, there were 575 hog producers in Manitoba as of July 1, 2012, down from 635 in 2010, 830 in 2009 and 1,500 in 2003.
h@ms Marketing Services, a producer co-operative, which last year marketed 72 per cent of the hogs sold in Manitoba and Saskatchewan, saw a 1.8 per cent increase in volumes last year. But its membership fell from 287 producers two years ago to 197 in 2012. Nearly half of them are Hutterite colonies.
Colonies may be better positioned to weather the crisis because many grow their own feed grains. But even Hutterites, who dominated last week’s meeting, will need to make hard decisions in the coming years about whether to continue raising pigs, Mohr said.
“I think it’s critical, even for this group, that they see some profitability in the hog side of things because there’s been a tremendous amount of equity eroded in the industry in the last three, four or five years.”
Mohr said hog prices have improved recently and could average $163.41/cwt, or roughly $175 an animal, in 2013. Slaughter numbers in 2012 were up 1.3 per cent in Western Canada, which included a 3.9 per cent increase in Manitoba and Saskatchewan.
But feed prices increases have more than outstripped market gains for pigs, Mohr added.
He said an informal survey of producers by h@ms found their feed costs average $130 a hog. That leaves $45 to pay for other expenses.
Some producers are able to show positive margins at the end of the day. But Mohr said many carry huge debt loads resulting from years of borrowing to cover losses and will need much greater revenues to see the light of day.
“We’ve seen zero to $15 hog profits. But how do you pay off $20 to $30 losses with zero to $15 profits? It takes twice as long and we haven’t been able to get any momentum going.”
Another problem is that many of Manitoba’s hog barns are nearing the end of their normal 25-year lifespan. Given the pressure to switch to open housing systems, producers will have to think hard about whether to rebuild, Mohr said.
The Feb. 28 meeting was the third of five annual district meetings held by h@ms this winter.