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Price plunge spells disaster for Alberta hog farmers

Demand is strong, Canadian packers are short 70,000 hogs weekly, but prices have plunged

A crash in prices — fuelled by Washington’s tariff war — could spell the end for many of Alberta’s dwindling number of hog operations.

The sector has already lost half of its hog farms in the past decade and with producers losing $50 on every animal they ship, more are looking at throwing in the towel.

“The price didn’t slowly decline; it went off a cliff in a matter of a few weeks,” Alberta Pork chair Dan Majeau said in late August.

“Within the last six weeks or so, we’ve seen our prices go down by 40 per cent, which is well beyond the cost of break-even.”

Moreover, producers haven’t had an opportunity in that time frame to forward contract or lock in profitable prices, he added.

As chair of Alberta Pork, Dan Majeau has been fielding many calls from producers who are thinking of throwing in the towel.
photo: Supplied

“It’s not very good. We’re getting a lot of calls from concerned producers,” said Majeau.

“When they look at the futures contracts and markets, it just doesn’t look like there’s any profit in it until the next spring at the earliest. So they just look at that length of time. That’s a lot of time and they’re saying, ‘How big a hole do I want to dig? Or do I just exit?’”

There are only about 350 commercial farms left in Alberta — and they’re facing the worst price situation in 20 years, said Brent Bushell, general manager of the Western Hog Exchange.

Bushell knows people who are getting out of the industry, including at least two Hutterite colonies.

Brent Bushell.
photo: Supplied

“We’re seeing colonies today that are saying, we’re actually not going to do hogs anymore. And to me, that’s a real scary telltale sign of the industry,” he said. “If a colony is not prepared to do it, the individual guy who does nothing but hogs, he’s going to walk away from it as well.

“The formula system that it’s based on just doesn’t work for what a fair return is. That’s the challenge the industry is at right now.”

And this is not a normal dip in the hog cycle.

In Western Canada, packers are actually short 70,000 hogs a week right now. But the market price is determined south of the border and two factors have sparked the price crash.

The American hog sector has greatly expanded in recent years, but then came a tariff war initiated by U.S. President Donald Trump. In April, China slapped a 25 per cent import duty on most U.S. pork items in response to American tariffs on Chinese steel and aluminum. Pork products were also included in a second round of Chinese tariffs introduced in July.

That stalled American exports and sent prices through the floor.

“Now transfer that over to Canada,” said Bushell. “The price that a Canadian gets per hog is based on the U.S. price. A Canadian price is getting paid on a depressed U.S. price, even though the western Canadian marketplace actually has a shortage of hogs.”

“At the end of the day, our price is being pushed down off a formula price from another country dealing with oversupply and tariffs,” added Majeau.

Bleak outlook

What’s more, summer is when demand and prices rise, making it the most profitable time of the year. That’s typically followed by a slump from mid-September to the end of March, when hog producers are almost guaranteed to lose money. That means producers know that the next six months likely won’t bring any relief.

So how bad could it get?

The pair pointed to B.C., where there are just 19 commercial hog producers (defined as ones which ship 200 or more hogs a week) left in the entire province. That’s not going to happen here because many operations are either owned or closely tied to packing companies.

But those who aren’t are facing a very grim future.

“Producers from Alberta are paid the lowest in Canada, if not North America,” said Majeau. “At these levels, it’s not a sustainable business situation. Break-even is $170 to $175 (per hog) and we haven’t seen numbers to support that. Hence, we see an industry that is shrinking. Or if the numbers don’t necessarily shrink, we see more integration between packer and hogs.”

Majeau, who raises crops and hogs near Edmonton, has also spoken with a couple of producers who have already made the decision to exit the industry.

If the situation continues, more will follow, he said.

“We’re sort of doing a survey of our industry right now to see where everybody is at,” he said. “I only know of two right now, but there’s surely been a lot of talk of guys saying, ‘Hey, we’ve got to know if there’s a future in this business.’”

Traditional business risk management tools are no longer working for the sector, and fundamental change is needed, he added.

“We’re working at every angle from government to industry and more than ever is the need for industry partners to be working together — packer (and) producer — and to look at the system and future and viability together and I think that’s going to keep it moving forward. We’re probably going to see pressure moving ahead for a number of months.”

It’s a different story for Canadian packers, which are not only getting their hogs cheaper but seeing more opportunities to do business in China, said Ron Gietz, an extension economist with Alberta Agriculture and Forestry.

“One of the things that the industry is going to have to do in Western Canada, we’re going to have to say, ‘Are we prepared to lose the industry or keep the industry in Western Canada but look at the redistribution of the value from the pork cut-out?” said Bushell.

“That typically falls directly back to the processors. They’re the ones who control the purse strings.”

To add insult to injury, the Trump administration is partially compensating American hog producers for harm caused by its tariff war. As part of its $4.7-billion farm aid package aimed at easing the pain of retaliatory tariffs by China and other countries, U.S. hog farmers will get $8 per pig multiplied by 50 per cent of Aug. 1 production.

But even if that was offered here, it would still leave a very large hole in the bank accounts of Alberta hog farmers.

“I’ve had guys ask me, ‘Why should I stay in the game? I’m losing about $60,000 a month. Give me a reason why I should keep raising hogs for the next six months,’” said Bushell.

The question came from members of a Hutterite colony but Bushell had no answer.

“I couldn’t come up with one,” he said.

About the author

Reporter

Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, she has also published two collections of poetry and a biography about a Sikh civil rights activist. Her freelance work has appeared in numerous publications across Canada.

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Comments

  • Monkeeworks

    When you see China with tens of thousands of hogs on one farm and want to break into the world export market for hogs and a Canadian government jumping for trade with China how could the outcome be any different? Doesn’t matter who gets hurt as long as our government got that trade deal. Next in our governments plan will be no hog farms in Canada and Canada importing all our pork from China.