Historical ups and downs in the hog marketplace have come to be expected. However, since last year, and more dramatically this year, low pig prices are sending a signal to Alberta’s pork producers that they should reduce barn inventory to minimize financial damage to their businesses.
In the past few months, with increasing frequency, producers have been choosing to cut back production. Because a production cycle lasts six months, this means that we are quickly approaching a time when processors may need to expect lower volumes of hogs received from producers.
In the past week alone, a number of prominent commercial hog producers have begun to actively undergo a reduction in breeding stock at a minimum of 25 per cent of their herds, and, in some cases, as high as 50 percent.
For an 800-sow operation, reducing breeding stock by even one-quarter amounts to the loss of approximately 5,000 marketable hogs per year. By using an estimated cost of production of $185 per hog, a producer will save more than $75,000 per month or close to $1 million for the entire year.
If industry wishes to see the future construction of modern, state-of-the-art barns, such capital investments are impossible if producers are not profiting. But if those investments are not made, production levels will suffer greatly in the long term, ultimately reducing processing capacity and the volume of pork available for consumers at home and abroad.
Curtailing production is far from the preferred option, but it is a logical choice at present. Sadly, it is the result of a dysfunctional system that relies on U.S. pricing indicators, which are triggering liquidation of the U.S. sow herd.
As an example, last week, two large U.S. farms, Maxwell Foods and Hitch Pork, liquidated their respective 54,000-sow and 15,000-sow herds. The same market conditions behind these decisions do not exist in Canada. Canadian processors are not backed up and require further hog supplies, but yet, current pricing mechanisms are sending the message that Canadian pork producers should also liquidate. As a result, we are witnessing the financial ruin of farm families.
For some other producers, reducing production is not a relevant consideration. They have chosen to cease production altogether, as the lingering negative returns have simply become too much to handle. This is an all-too-common story line that is crippling what should be a strong industry that we are proud to present to the world.
Considering supply and demand, when the price of a commodity decreases, that is often an indication of over-supply or a lack of demand. But for the Canadian pork value chain, that relationship has been turned on its head. Global demand for protein remains huge, while producers mysteriously struggle to remain economically viable, and processors operate their plants under-capacity. But as prices continue to plummet and costs continue to mount, producers are faced with some tough decisions in terms of what they can control.
Today, all signs point toward the need for change through better pricing and closer working relationships across the value chain – unless having fewer pigs is the goal?
For further context related to shared value concerns, check out these articles from Alberta Pork and the Canadian Hog Journal:
- Producer-packer tensions threaten viability
- Sharing the value of western Canadian pigs: an update
- Price indexing: does it pay to produce better-quality pigs?
- Hog price calculator now available
- Economic tools highlight a system in need of change
- Quality assurance brings value, but who pays?
- Buying into biosecurity can be a burden