Pork Commentary: Western Canada’s Hog Industry Restructures
Author: Jim Long, President & CEO, Genesus Genetics
via ThePigSite - 15 January 2013
CANADA - Three of the largest Hog Operations in Canada (Western Canada) have had major changes in ownership in the last few weeks, writes Jim Long.
All in our opinion due to what was a broken business model. Puratone 26,000 Sows purchased while under financial duress by Maple Leaf Foods, Big Sky 45,000 sows it appears will be purchased by Olymel Corporation out of receivership and then last week HyLife 47,000 Sows, slaughter plant, Fast Genetics sold one third of their shares to Itouchu Corporation of Japan.
Common thread, all three farrow to finish operations purchased their feed and sold hogs in the Canadian Market. All three without deep enough pockets to prevent change of ownership structure when hit by the last five years of a high Canadian dollar, high feed costs and negative profit hog prices. All three now purchased by companies that are looking for pork for their slaughter plants and pork markets.
Over the last five years negative cash flows have affected production targets and efficiencies. Feed rations were cheapened, that cut production results, good employees left as they saw the writing of the wall, maintenance and repair was not kept up in the buildings, while swine genetics suffered from lack of investment and poor decisions. Maybe most importantly the corporate farrow to finish structure, buying feed while selling hogs at a lower price was unprofitable. 10’s of millions of dollars were lost, while family farrow to finish operations that grow their crops and provide themselves significant management and labour could produce at a lower breakeven.
Now, all three production companies are tied to deep pocketed Corporations, Maple Leaf Foods, Olymel and Itouchu. They will now be long term relevant. We would not be surprised if Itouchu a huge Japanese trading company takes majority control of HyLife sometime in the future.
The sad part for the former shareholders of all these production companies is little money got to them. Invested it, and then lost it, a real bad scenario. The money of new owners has gone to pay debt.
Moral of story, can’t continually lose money and stay whole, but maybe Henry Ford said it best:
“Failure is simply the opportunity to begin again, this time more intelligently”
The US Hog market continues to hover around 80? lean which is leading to producers losing up to $40 per head at current feed prices. In the next few weeks the back log of hogs from the shortened marketing weeks of the holidays will clear up and we expect lean hogs to head towards 90? lean per pound.
Big Sky, Puratone and HyLife have had big shareholder changes, all due to huge financial losses. We find it hard to believe that in such a grim circumstances of an entire industry currently losing $100 million per week that we are to believe there is new sow herd expansion. If so we must have very positive bankers and thy must be extremely bullish about the future of the hog industry.