Hogs Profitable Again, But Producer Debt Still Huge

Manitoba hog producers face a long, steep road to financial recovery despite a recent return to profitable prices.

A recent market rebound means producers can expect profitable margins this spring and into summer, according to [email protected] Marketing Services Co-op.

But producers remain saddled with crippling debt loads accumulated during three years of depressed markets that will take years to pay off.

Hundreds of hog farmers have left the industry, either closing their barns voluntarily or accepting government buyouts.

Many of those who are left have eroded their equity and incurred even more debt just to stay in business.

They are seriously considering if they have a future, said Perry Mohr, [email protected] general manager.

“A lot of guys I’ve talked to in the last two weeks are looking at their situation and saying, the price will never get high enough for me to get out of debt,” Mohr said.

“If you lose $50 a head for three years and you make $20 a head for one year, do the math. You’ve got a lot of digging out to do.”

[email protected], formerly Manitoba Pork Marketing, is a producer-owned marketing service for hog farmers in Manitoba and Saskatchewan. [email protected] handles about 40 per cent of the slaughter hogs sold in Manitoba.

Figures released at [email protected] annual district meetings earlier this month paint a mixed picture for the state of the industry.

Prices have bounced around during the last year, alternating between positive and negative margins.

Hog-feeding margins began 2010 in negative territory, rose sharply in spring, stayed positive throughout the summer, fell below the break-even point in October and remained there the rest of the year.

Margins resumed an upward trend in January 2011. They are expected to top $20 a hog in May and remain positive during June and July.

Contract prices offered by Maple Leaf Meats in Brandon to Manitoba producers are up more than 15 per cent over last year.

“The word that everybody’s using is that the industry has stabilized now,” said Mohr.

But he cautioned that rising feed grain prices, a strong Canadian dollar and U.S. country-of-origin food labelling make the outlook less rosy.

Expected record-high North American hog prices this year will be offset by record-high feed prices brought on by extremely low year-ending U.S. corn stocks, said Mohr.

A combination of ethanol demand for corn and the risk of a delayed planting season in the U.S. Midwest because of wet conditions means “we will need every acre of corn (to) produce on average 160 bushels an acre to get back into a comfort zone for ending stocks.”

The Canadian dollar shows no signs of weakening against its U.S. counterpart, which is negative for prices. Canada’s five chartered banks all predict the loonie will be at or above parity until at least the end of 2012.

Because hog prices in Canada are based on a U.S. formula, a strong dollar erodes returns to Canadian producers. If the dollar had remained at 2009 levels instead of rising in 2010, producers would have received $12- $14/100 kg more in average price last year, said Mohr.

The dollar and the U.S. COOL rule have had a severe impact on Canada’s pig exports. Mohr said Canadian live bacon hog exports to the U.S. numbered 585,145 animals in 2010, down from 2,804,000 in 2008 – a 79 per cent drop. Weanling exports fell 31 per cent to 4,570,000.

Despite the drop in exports, slaughter space in Western Canada is underutilized, said Mohr. He estimated slaughter capacity in the West is around 85 per cent, compared to nearly 100 per cent in most U.S. plants. Much of the empty hook space is at the Olymel plan in Red Deer and at Thunder Creek Pork, a newly renovated plant in Moose Jaw.

Mohr suggested packers may have to pay a price more equivalent to the U.S. price or risk losing further capacity if producers do not get the returns they need. [email protected]

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“Ifyoulose$50aheadforthreeyearsandyoumake$20aheadforoneyear,dothemath.”

– PERRY MOHR

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