During Alberta Pork’s annual general meeting (AGM) in November 2020, a resolution was passed to explore “a single-desk selling system, similar to Quebec,” and during Alberta Pork’s semi-annual meeting in March 2021, one producer asked whether the Quebec pig pricing model was well understood, and whether other producers knew how the price was calculated.
In the article, “Quebec pig pricing: breaking down the numbers,” a breakdown of the Quebec price was presented, examining how it is calculated, and using relevant examples to demonstrate its application in the market.
In this article, take a look at how the Quebec price and some western Canadian contracts responded during the same week, as a way to compare and contrast their benefits and drawbacks for producers.
Comparing the Quebec price to Olymel and Maple Leaf Foods in western Canada
On the website for Les Eleveurs de porcs du Québec (Quebec Pork), the daily global price is published, as well as its method of calculation, shown here. This allows web visitors to see the posted price of all the packers in the province, including all grids and 13-week average indexes. Quebec Pork’s website is not only a hub for current data but historical data too. Data for the week of March 15 to 19, 2021 is shown in the table below. The global price trended upward slightly over the week and averaged around $232.
OlyWest prices for this week under review were calculated based on reports from the previous week (March 7 to 13, 2021). The average price was just under $240 and $227 per hog for the OlyWest 2020 and 2021 contracts, respectively. For the Maple Leaf Foods Signature 4 contract, the review week starts on Friday, March 12 as opposed to Monday, March 15 for the Olymel contracts. Therefore, Friday, March 19 begins a new week under the Signature 4 contract. For Monday to Thursday during the week of March 15 to 19, 2021, the price was $221.04, while Friday’s price jumped to $226.26, with the start of the new contract week. The average across Monday through Friday was $222.08.
In western Canada, the index value used to adjust prices falls within lower ranges, from 107.5 to 114.89, as described in the article, “Price indexing: does it pay to produce better quality pigs?” In Quebec, this value varies for each plant as well. For illustration purposes, compare this to the Olymel Plus price in Quebec. The 13-week average index was 111.7. Therefore, a hog with a lower index will receive less than the global price. In this example, however, it is assumed that the representative hog on the Quebec grid receives the average index.
If you are on the OlyWest 2020 contract, you would have done much better in the week of March 14 to 20, 2021 than if you had the Quebec price. The revised OlyWest 2021 contract sits around $6 less per hog than the Quebec price and more than $12 less per hog than the OlyWest 2020 contact. The Maple Leaf Foods Signature 4 contact sits at approximately $17 less per hog than the OlyWest 2020 contract, $9.50 less per hog than the Quebec price and $4.50 less per hog than the revised OlyWest 2021 contract.
However, the revised OlyWest 2021 contract has something that the Quebec price, OlyWest 2020 and the Maple Leaf Foods Signature 4 contracts do not: a (quasi) floor base price set at $160/kg. Barring a significant drop in the cutout price, a hog receiving the average grid grade would not fall below $177 (with bonuses) on OlyWest 2021.
Quebec price includes no premiums or freight coverage
An obvious disadvantage to the Quebec price over western Canadian contracts is that no additional premiums are available, other than the $2 premium that was built into the global price calculation. There is also no compensation for transportation costs.
If your transportation costs were more than $6 per hog, then even if you were on the OlyWest 2021 contract, you would have done better in the week of March 14 to 20, 2021 than Olymel Plus producers in Quebec, who would have still paid their $6 for trucking. Based on estimated calculations, the average price differential (difference between the prices or the price spread) would have been $5.96 between the Quebec price and the average OlyWest contract (using a simple average of OlyWest 2020 and 2021) between 2016 and 2021. This is shown below using the average compensation for transportation under the OlyWest contracts.
In addition, the spread between the Quebec price and Maple Leaf Foods Signature 4 contract is even more pronounced. Again, transportation would need to be deducted from the Signature 4 contract for an ideal comparison. This would increase the average spread from more than $12 to more than $18 between 2016 and 2021.
As a result of having a strong association with the pork cutout value (LM_PK602), the Quebec price has had the most appeal. However, if cash prices fall sufficiently, the producer could still face significant losses. The combination of the pork cutout value and a floor price within the OlyWest 2021 contract could be more appealing to the producer with a lower risk appetite, as much of the volatility is taken out of the price.
Hog pricing across Canada still requires urgent attention; however, some of the recent changes to the OlyWest 2021 contract, including a portion of the cutout price and transportation costs, are a step in the right direction. This has narrowed some of the pricing gaps between western and eastern Canada.
Alberta Pork’s economics web section is designed to support producer success by providing the necessary tools for effective financial decision-making. The section includes pork market and hog supply reports, contract pricing breakdowns, information on our cost of production study and the latest economic research.
If you have any questions or concerns, contact Bijon Brown, Production Economist, Alberta Pork by email at email@example.com or by phone at 780-440-8460, toll-free at 1-877-247-PORK (7675).