Dozens of hog farmers who agreed to close their barns and leave the industry under a government program appear to have had a change of heart.
So far, 50 producers who placed successful bids in the federal Hog Farm Transition Program have decided not to accept their buyouts, the Canadian Pork Council confirmed July 21.
A sudden improvement in market prices may be the reason, said Andrew Dickson, Manitoba Pork Council general manager.
“Producers took the program in anticipation that things would be bad. And they’ve turned around,” said Dickson.
He suggested some successful bidders in the $75-million buyout program may have looked at their debt loads, met with their lenders and decided to carry on after all.
“They came to the conclusion they’d be better off staying in business and pay the debt down than going out of business.
“In some cases, they’d be facing bankruptcy.”
There could be more producers who refuse to take their buyouts before the March 31, 2011 final deadline, Dickson said.
“I wouldn’t be a bit surprised.” CPC officials said producers
next in line who bid unsuccessfully in previous tenders held under the program will receive offers to take their places.
The program for financially stressed Canadian hog farmers paid them to sell their animals and mothball their barns for at least three years.
It removed roughly 800,000 pigs, including just over 131,000 sows, nearly 250,000 weanling pigs and more than 420,000 market hogs, the CPC reported earlier this year.
Four tenders received 1,407 bids, of which 424 were successful. The final tender was held March 10.
The program helped lower hog numbers in Canada as part of an effort to stabilize prices by reducing supply.
Earlier this spring, Statistics Canada reported 11.6 million hogs on farms as of April 1, down 2.1 per cent from the same date in 2009. The number of sows was 1.3 million, down 5.7 per cent.
StatsCan says a report on hog numbers as of July 1 will be out August 19.
HERD STILL SHRINKING
Kevin Grier, a livestock analyst with the George Morris Centre in Guelph, Ontario, said he expected the new numbers will be even lower.
“Bottom line, I expect at least a three per cent reduction in the sow herd.”
Grier said recent improvements in market prices isn’t enough for producers to stop liquidating herds.
“They’ve had a decent run, but obviously it’s not going to offset the massive losses of the last 3-1/2 years.”
Dickson said current returns for Manitoba slaughter hogs are above the break-even point for most producers.
He said producers can expect to average $150 per finished hog until the end of August.
But even higher returns are needed for producers to start paying down debt accumulated during nearly four years of depressed markets, Dickson said.
“The advice we have from accounting firms is that you would need to get into the $150 to $160 range.”
That’s not likely in the near term. Dickson said futures contracts for November, December and January are in the $135 to $137 range.
Worse still, some economists are predicting a cyclical hog price downturn in 2014 or 2015 because of overproduction in the U. S.
The U. S. has been slow to lower its hog numbers because a low American dollar makes exports attractive and enables the industry to sell a greater share of its production overseas, Dickson said.
“Anybody who thinks that this is going to be an easy recovery is living in some other world.
“It’s not going to be a quick turnaround like it has been in previous cycles.” [email protected]
“They came to the conclusion they’d be better off staying in business.”
– ANDREW DICKSON, MPC