Swine Grist
A PERIODIC NEWSLETTER PRODUCED BY GRAND VALLEY FORTIFIERS VOLUME 7, ISSUE 3 | FALL 2020
Dear Friends, While we faced significant challenges living with COVID-19 precautions and low pork prices this summer we were blessed with a summer of warm, beautiful weather. Some parts of Ontario (including where I live in Brant County) dealt with very dry conditions for the month of August. We know there are areas that were hit much harder with drought conditions and so we’re thankful for those who did receive rain in time. As we move into fall, we pray all producers will enjoy a safe and productive harvest. Yesterday we were reminded of how quickly an accident can happen as a farmer was killed while bringing his soyabeans into a local grain elevator. Please take time to operate safely and carefully this fall as all life is precious. Ian has written a very interesting article considering the macro view of pork prices and what could be done to modify our pricing mechanism. We thank Dr. Greg Wideman of Southwest Vets for his PRRS update and Gerry Friesen for his article on mental health on the farm and the importance of taking that seriously. We hope you enjoy this issue of the Grand Valley Swine Grist and have a safe and successful fall harvest. Sincerely, Jim Ross, Founder & Chairman
CANADIAN HOG PRICING SEPTEMBER 2020
by: IAN ROSS President & CEO, Grand Valley Fortifiers
W
ith the lackluster and sometimes abysmal prices that Canadian pork producers have experienced over the past two years, the topic of live hog pricing methodologies has resurfaced in earnest. Certainly, this important topic comes to the fore every time there are non-cyclical, protracted times of low pork prices. Once pork prices recover to long term average prices or higher, the pricing methodology topic typically falls out of favour as producers refocus on production volume and efficiency gains to maximize their profits in “good times”. With the view that one should never waste a good crisis to make significant and often difficult change and recognizing that numerous fundamentals have shifted over the past five years, we believe the time is now to agree on new ways to price Canadian hogs for the long term benefit of producers, packers and marketers of pork. As the industry re-approaches this contentious and complicated topic, producers and packers need to set aside the historical malaise of distrust, displeasure and even antagonism that has existed and embrace the reality that everyone at the boardroom table are business people that need each other to have a profitable and financially sustainable future for the long term. Certainly, in the Prairies, where most federal packing plants have been functioning at around 70% capacity for at least a decade, the shortage of hogs has curtailed profits, additional investment and the seizing of expanding, profitable pork marketing opportunities. The embracing of multi-site pork production systems in the 1990s, allegedly for production efficiency gains, was also driven by the inconsistency of supply of hogs to packers and this inconsistency of supply has encouraged a great deal of integration to occur in the North American pork industry. Dr. Samuel Waititu, Dr. Saymore Ndou, Monogastric Nutritionists AB/SK: 1-866-610-5770 | MB: 1-866-626-3933 fortifiednutritionltd.com
The irony of the Prairie province situation is that the apparent hog shortage vis a vis the slaughter and processing capacity has not translated into higher prices for this region’s hog producers. “Producers in Saskatchewan and Alberta tend to receive the lowest price among Canadian provinces. Currently, there is high level of dissatisfaction with the price discovery process among Western Canadian producers, as producers perceive that packers are consistently making profitable margins on hogs, while feeling that these are not being shared fairly with them based on their reading of the consistent negative price differential with Eastern provinces. All available market information received by hog producers in Western Canada point to a rather one-sided price discovery system benefiting packers. This translates into an unwillingness to invest and expand production, even in the Hutterite colonies, which are among the lowest-cost producers in North America” (Gira, 2019, p.13). And so, the Prairie province hog shortage continues. More recently, some western packers are offering low interest or interest free loans to producers and colonies, encouraging them to invest in new, larger barns to expand production on the condition that they sign 10 – 15 year supply agreements using similar hog pricing mechanisms that they have employed for decades. On the other side of the board room table, it is fair to say that the primary producers of pork have not shared in an equitable percentage of the value of the final products that are sold both domestically and internationally. And this reality is worsening. “Over the last five years, the packing sector has been capturing a larger share of pork value in the US (Gira, 2019).” There has been huge consolidation in the Canadian livestock industry (even in the supply managed sector) with thousands of farmers getting out of meat and milk production over the last three decades. Family farms are getting much larger (and multi-site) but with the consolidation of the packing and retail industry, these much larger farms are still not large enough to effectively negotiate supply agreements individually and yet, with the loss of the provincial marketing boards’ mandates this is exactly what independent pork producers are asked to engage in. So, Ian Ross, President | Jim Ross, Chairman | David Ross, VP & CMO Dr. Martin Clunies | Bruce Schumann | Adam Totafurno, Monogastric Nutritionists Michael Peckover, Publisher