U.S.-based hog prices part of problem: report
Hog producers say the mechanism used to determine prices in Western Canada ignores regional supply and demand
By Ed White, The Western Producer (Canada)
July 30, 2020
Western Canadian hog pricing is so broken it not only doesn’t reflect supply and demand for pigs but is actually sending the opposite signals that that laws of supply and demand should dictate.
It’s such a critical, multi-cause failure that if it is not corrected soon, malfunctioning prairie hog prices could cause the whole industry to crater, says recent analysis prepared for Western Canada’s hog farmers.
“Supplies in Canada are lower than packer demand (and) need, but the pricing in Western Canada is telling producers to reduce supply and/or exit the industry,” says a report the hog producer organizations of Manitoba, Saskatchewan, Alberta and British Columbia recently presented to Canada’s main hog slaughter companies.
“Finding a reasonably equitable method of sharing the value of the pig is fundamental to the long-term sustainability of the industry for both producers and packers. The fact that the overall growth in the western Canadian hog sector is near zero and existing barn maintenance is at an extremely low level, suggests an industry in significant decline if not directly toward collapse.”
The analysis suggests a systemic failure in the pricing structure that dominates the money independent farmers receive for selling their pigs. The problems include:
· Prices based on U.S. market conditions expressed through futures contracts, not western Canadian supply and demand.
· U.S. price that might not accurately reflect the price that the vast majority of U.S. hogs are actually selling for.
· A lack of connection between cash market prices for pigs and the wholesale value of processed pork.
This has created a problem in which:
· Western Canadian pig prices are chronically undervalued.
· Farmers suffer incredible negative volatility as losses become catastrophic and unpredictable.
· Farmers have become unwilling or unable to reinvest even in barn maintenance, let alone building a new generation of hog barns.
· Slaughter plants are running well under capacity due to a dearth of market hogs.
· The industry is unable to react to strong export demand from Asia.
· The entire industry faces a bleak future.
Not all of Canada’s farmers face an equal amount of woe. Quebec’s producers are the beneficiaries of a new pricing system in which wholesale pork values (approximated by the “cut-out” price) are strongly reflected in pig prices.
Neepawa, Man.’s HyLife Foods has also integrated cut-out values into its pricing, an example the western hog producer organizations have urged Canada’s other packers to emulate...