From low pig pricing to COVID-19 impacts, and from rising farm costs to less opportunity for farm businesses to thrive, Alberta hog producers today are in a very tight spot. As time goes on and profitability continues to decline, some producers are reducing production or exiting the industry altogether.
Despite these challenges, it is as important now as ever to consider using business risk management (BRM) programs, delivered in Alberta through the Agriculture Financial Services Corporation (AFSC). In recent years, Canadian hog pricing issues have created a scenario in which BRM programs, designed to help farmers, are incapable of providing support to counter-act deep financial losses.
While the reality is that BRM programs do not work for everyone, they still work for some. For many, financial losses have been so great for so long that any amount of support is a drop in the bucket, if the support can be triggered at all. BRM is not the solution to Canadian hog pricing woes, but these programs should serve as a stop-gap solution when needed for unforeseen business disruptions and global events that effect the industry.
When it comes to federal-provincial core BRM programs – AgriStability, AgriInvest and AgriRecovery – much concern has been raised about reference margin triggers that are too low, cash flow that arrives too slowly, disqualifications for mixed-commodity operations and other challenges that have soured producers’ opinions, especially as a result of issues related to COVID-19.
Various producer organizations across Canada have called on governments to expedite changes, but these requests have largely gone unaddressed despite these groups’ best efforts to meet, discuss and demonstrate the need for increased attention.
Acknowledging that these issues remain, BRM programs can play an important part when it comes to insulating your operation from financial loss. And while not everyone actively uses these programs, they may benefit producers who are able and committed to making them work.
Hog price insurance may be a helpful option for some
The Western Hog Price Insurance Program (WHPIP) gives producers the option to purchase an insurance policy based on a forecasted hog price, ranging in length for two to 10 months. Coverage levels typically span from 75 to 95 per cent of the forecasted price for a specific month.
To qualify, in Alberta, a producer needs to have owned hogs for at least 20 consecutive days, and the hogs must be sold to Olymel or Maple Leaf. When the policy expires at the end of the one-month WHPIP policy period, the coverage purchased is compared to a settlement price, based on market conditions for the individual packer. If the settlement price is below the insured or ‘floor’ price, a payment of the difference is made.
Hog settlement price is calculated using daily hog prices averaged across a given month, and compared to the appropriate packer factor according to where a producer sells hogs. The forward price is calculated using the Chicago Mercantile Exchange’s (CME) lean hog futures with a cash-to-futures basis adjustment. That price is then converted to a western Canadian equivalent using the daily exchange rate and measured against the floor price that corresponds to a producer’s WHPIP plan. At the beginning of each month, the previous month’s settlement price is made public, and producers can evaluate whether they will be paid out for that period of time.
So far in 2020, AFSC has paid out a modest sum of WHPIP dollars to hog producers as a direct result of losses incurred during this past year. For our those who have purchased coverage, it has provided a bit of needed short-term support.
AgriStability can benefit pig-only producers
AgriStability provides producers with protection against large declines in revenue.
Waiting a full year for AgriStability to pay out is standard; however, producers enrolled in the program are now eligible to apply for an advance on their AgriStability payment. Even new program participants may be able to apply for an interim advance payment as long as they are enrolled and have paid the program fee.
In April, the Government of Alberta increased the interim payment under AgriStability from 50 to 75 per cent for the hog sector, meaning that a producer six months into the program could receive up to three-quarters of their total loss estimate for the entire year, with the remaining 25 per cent delivered at the end of the year.
When the increase to the advance payment was announced, officials speculated that the move would allow the hog sector to access up to $25 million. Increasing the advance payment under AgriStability was meant to result in the equivalent of $20 per head for pork producers enrolled in the program, though it seems unlikely this level of support will be forthcoming.
Unfortunately, as many hog producers have mixed-commodity operations, AgriStability may be unsuitable for those who are losing a great deal of money on pigs but perhaps earning a bit of money on canola or another crop, as an example.
Challenges related to accessing AgriStability have been exacerbated by the unresolved Canadian hog pricing situation, which cannot be fixed through BRM programs. If the pricing can be repaired, then AgriStability has the potential to be a highly effective tool during years with unexpectedly poor financial conditions or during an unprecedented situation, such as the one created by COVID-19.
AgriInvest accounts should be used immediately
AgriInvest helps producers manage small income declines and provides support for investments to mitigate risk or improve market income.
In May, Marie-Claude Bibeau, Minister, Agriculture and Agri-Food Canada (AAFC) was very clear that her government believes it has done enough so far to help producers on the BRM file. While many producers will likely dispute this claim emphatically, it stands to reason that they must be diligent in taking advantage of all available supports that already exist.
Any producers who still have money in their AgriInvest accounts are encouraged to use these funds to support their businesses as soon as possible. While the situation today is akin to a torrential downpour, this ‘rainy day fund’ is design to help producers get over short-term hurdles when their farms are experiencing hardship.
COVID-19 invokes AgriRecovery with uncertain results
AgriRecovery helps producers recover extraordinary costs beyond what is available through other financial assistance programs.
The program is used sporadically according to government-assessed need. In 2020, the negative impacts of COVID-19 on farm operations was the impetus. In May, the Government of Canada launched a new initiative to provide up to $125 million in funding to help producers faced with additional costs, which includes hog producers who are affected by on-farm inventory back-ups due to processing facility closures.
Since the announcement of the cash injection was made, no evidence has been presented by the Government of Canada to benchmark how much has landed in producers’ pockets. Unfortunately, while the goal of the AgriRecovery program appears noble, and the $125 million gesture is welcome, it would seem the program has not yet benefitted pork producers in any meaningful way.
For information on any of the products offered by AFSC, contact your local branch office, email email@example.com or phone 1-877-899-2372.
The road ahead may be dark, but there is some light
As we move forward in asking the government and, ultimately, taxpayers to help our industry, we need to show that we are using the tools that have already been provided to us.
On separate occasions earlier this year, the Canadian Pork Council (CPC) had asked for the AgriStability reference margin to be increased from 70 to 85 per cent, along with a request for an ad hoc payment to producers at $20 per head. More recently, CPC has asked for the AgriStability payout levels to be increased, rather than the reference margin. So far, unfortunately, none of these requests have been accepted.
Only by using existing BRM tools to their fullest can external stakeholders be convinced that more must be done. The argument for further support has been made very strongly for producers, but in today’s COVID-19 climate, the agriculture industry continues to drift further away from politician and consumer understanding.
Now is the time for Canadian pork packers and pig producers to work together to find a long-term, sustainable solution that shares the value of Canadian hogs more equitably. Only then will producers not be forced to rely on government BRM programs while packers continue to advance their business success in export markets.
For more information on BRM programs, please contact Charlotte Shipp, Industry Programs Manager, Alberta Pork by email at firstname.lastname@example.org or by phone at 780-491-3528, toll-free at 1-877-247-PORK (7675).