It could be a great time to be a North American hog producer, then again, it might not be.
Either way grain farmers win, according to this year’s Kraft Lecturer.
Asia needs a lot more meat. It’s cheaper to produce pork in North America, so North American pork exports should, in theory, increase, according to Dermot Hayes, an agricultural economist at Iowa State University. If they don’t, Asia will import more North American grain to feed their own livestock.
“For grain farmers this is all good news,” Hayes said during a presentation at the University of Manitoba Feb. 28.
“For the livestock producers here you’ve either got a new customer or a new competitor.”
Hayes, the Pioneer chair in agribusiness at Iowa State, is the fourth speaker honoured by the Daryl F. Kraft Lecture Series on Agricultural Policy. (See sidebar.)
Manitoba hog farmers have suffered huge losses in recent years but 2011 was profitable for most of HAMS Marketing Service’s Manitoba clients’ general manager Perry Mohr said later in an interview. Currently hog producers are earning just slightly better than break-even returns.
Mohr agrees with Hayes, whom he described as one of North America’s pre-eminent hog market analysts, that Asian markets represent huge potential for this continent’s hog producers. The biggest immediate threat Canadian hog farmers face, in addition to the strong Canadian dollar, is the U.S. losing export markets. Canadian hog prices are based on those in the U.S. less freight.
Canadian hog farmers have another albatross — U.S. mandatory country-of-origin lableling. It makes it more expensive for American packers to process and sell Canadian livestock. The World Trade Organization ruled against COOL and the U.S. has until March 23 to appeal.
“On behalf of the (American) pork industry I want to apologize about COOL,” Hayes said. “It was a disaster.”
It’s much cheaper to ship frozen deboned, boxed meat to Asia from North America than bulk grain. Every pound of pork contains around three pounds of grain. It costs six or seven cents a pound to ship a bushel of corn from Iowa to Japan.
“We can get frozen meat over there for 12 to 15 cents a pound,” Hayes said. “So as long as there is more than two pounds feed grains in a pound of boneless, boxed meat it always favours moving the less bulky product.”
Based strictly on economics, China should be importing more meat from North America and less grain.
“But China is not driven by a market economy,” Hayes said in an interview. “They’re driven by a bunch of old guys, some of them were hungry.”
China wants self-sufficiency in pork, but Hayes contends its food security has already been comprised by having to import huge volumes of feed grain.
Canada and the U.S. have a similar cost of producing hogs, which are among the lowest in the world, because of efficient production, Hayes said. Feed grain is expensive, but still cheapest in North America where it’s produced in surplus.
A bushel of corn worth $6 a bushel in Iowa is worth $11 or $12 a bushel by the time it gets to a Chinese hog farm. Corn imports set the domestic price. Twelve-dollar corn still doesn’t provide much gross return for a four-acre Chinese farmer, Hayes said.
Half of China’s hogs are fed with home and industrial waste. As the Chinese get richer there will be less cheap labour to collect that waste, pushing Chinese production costs even higher, he said. Meanwhile, the Chinese government is shutting down “backyard” hog operations.
Many farms are small because they’re located in sloped or rocky areas where mechanized production is difficult, Hayes said. It’s also unsuitable for livestock manure. Until this year South Korean farmers have been dumping manure in the ocean, but that has been banned.
“I don’t think there’s a flat part in that whole country so there’s no easy way to use livestock manure,” he said, unlike in the U.S. Corn Belt of Canadian Prairies.
Perhaps the biggest threat to Asian livestock production is disease, Hayes said.
People and livestock live very closely together in places like China and South Korea.
“The closer the animals get the worse your disease problems are,” he said.
“That’s a recipe for disaster. Intuitively, as a non-trained biologist I think something bad could happen there.”
South Korea is still recovering from a devastating foot-and-mouth disease outbreak, meanwhile the disease was confirmed in China Feb. 21.
Asked if it’s a good time to be producing hogs in Canada: “I hate to make investment decisions. I just give people the information I have. I’m encouraged.”
But there’s always risk. One is losing the export markets, which would occur quickly if disease struck here and borders closed.
That’s why the U.S. hog industry is working on developing catastrophic insurance coverage.