By Harry Siemens www.SiemensSays.com
The hog industry keeps churning and churning, and churning, and most likely isn’t for the faint of heart. If it isn’t supply and demand, or feed prices, or currency exchange, PED virus, crazy regulations, lack of financing for expansion, and labour shortages, it is something else.
Florian Possberg, chair of the Saskatchewan Pork Development Board expects a dramatic slide in the value of live hogs since November to curtail any plans to increase North American pork production in 2015.
While not a good thing for hog farmer pocket books and bottom lines, a drop in prices for the commodities farmers grow and sell never is, but in this case slowing down some expansion thinking and talking in the United States isn’t all bad. Many producers and industry people at the recent hog meetings in Banff and Winnipeg showed some real concerns for what could happen in 2016 should the strong prices continue.
In late November, June futures on the Chicago Mercantile Exchange traded at around a dollar per pound but, but with farmers raising heavier hogs and the effects of PED visus not as severe as some anticipated, those same June futures fell to 77 cents per pound in early February.
Possberg says a year ago, the industry looked at very severe losses causing a shortage of pork in North America when beef and poultry supplies were also low.
“This year, the losses are fewer losses than expected from PED pushing slaughter numbers up by about six percent while poultry production has also increased,” he says. “We did have an exceptional year in 2014 with high levels of profitability for those that escaped the disease problems.”
Some of those producers had thoughts of expanding operations, not so much in Canada but certainly in the U.S. and with the lower prices some production probably is currently operating at a loss. Hopefully it rebounds as when spring gets into the summer months, but cash is king.
“If you're not making money certainly some of the anticipated expansion projects, producers will either put on hold or shelve altogether,” says Possberg. “Most producers anticipated the first half at least of 2015 would still be quite profitable.”
He says the reality of significantly lower prices than anticipated has changed the mindset of producers from one of comfort and in some cases aggression in terms of replacing things and doing maintenance to one of holding on and preparing for a down turn.
At the same time, and this is where it really does become a paradox, even if the industry can or will expand in Canada, lack of workers may not let them.
The Canadian Meat Council says if Canadian meat processing plants can’t get workers, it jeopardizes the viability of the plants, the profitability of livestock producers, and existing jobs at those plants.
Changes made in June to Canada's Temporary Foreign Worker Program cut the ability of Canada's meat processing plants to supplement their work forces and maintain processing capacity.
Ron Davidson of the Meat Council says when plants are short of workers, they still have to slaughter and process, and the shortages show up in the value added.
“The value added areas are where there is an opportunity for some profitability in a very, very narrow margin industry,” says Davidson. “If we don't have an opportunity to add value in our plants, the economic viability and sustainability of those plants becomes much more difficult.”
The ironic thing here is the fact the shortage of workers is hitting processing plants in areas where hog farmers can actually produce more hogs because restrictions like Manitoba’s hog moratorium don’t apply there.
“The impact on producers, if we don't have enough workers, first we don't buy as many animals, so they're forced to rely on exporting animals to the U.S. for processing,” he says. “If we don't have the value added for the plants, we do not have the ability to pay as much to the producers as we would if the plant was operating at a higher capacity and adding value.”
There's also placing at risk the future jobs of existing workers in those plants because if the viability and sustainability of those plants is challenged, so is the potential for the plant to stay in operation.
Davidson says Canada is very successful in opening up export markets but now with a lack of staff, those plants can’t take advantage of those export opportunities.
There is one other factor. With less Canadian product on the market, meat retailers have to rely heavier on food imports.
Source: Siemens Says