The past year hammered the already struggling hog industry — but is there hope on the horizon for 2021?
“I don’t want to be doom and gloom, but I have to say no,” said Brent Bushell, general manager of Western Hog Exchange.
“In Western Canada, on average, producers haven’t made money since about 2015. Guys can only hang on so long.”
New pandemic protocols and COVID outbreaks among workers slowed processing, creating a backlog of hogs. That caused prices to drop last May, and they never really recovered, said Bushell.
“May through to the summer is typically the time when producers make money due to global supply and demand,” he said. “The goal is to make enough money in four months that you can ride out the other eight months if you’re not making money.
“That didn’t happen last year because of the backlog of hogs. It really took out the best part of the year.”
While prices did rally a little in October, by December, they were back to what producers might see in a normal year, “which was a loss,” said Bushell.
And that trend is likely to continue. Sterling Marketing, which Bushell uses for forecasting, projects losses of $13 a head for farrow-to-finish producers, while packers are projected to earn $37 a head in 2021.
“We’re early into the year, but already that’s the type of prediction that we’re starting to see,” he said.
There are a few reasons for that. First, China seems to be back in the pork business, with some estimating that they’ve rebuilt their decimated hog herd back to 90 per cent of where it was before African swine fever.
“Time will tell whether that’s true or not, but because of the speculation, it forces prices down,” he said. “If China is truly back to 90 per cent of where they were pre-African swine fever, they’re not going to need as much pork from anywhere else in the world.
“The reality is, we may have too many hogs in the world. That’s going to diminish the amount of exports.”
Second, feed costs are high right now and “producers are paying probably an extra $9 or $10 per head just in feed costs alone.”
And finally, the pandemic won’t be over soon.
“Even if things look really good for the summer, if COVID flares up in some of the major processing plants in the U.S. and they have to shut down, we’re going to be right back to the same problem we had in 2020,” said Bushell. “There’s going to be a backlog of hogs again and the price will decrease.”
But underpinning all of those factors is a broken system that pays western Canadian hog producers less than their eastern counterparts, he said.
“The system that we have right now is completely broken. It’s starving out our producers,” he said.
It started in 2015 when the pricing formulas and the value of wholesale pork were decoupled, he said, adding that prior to that, they “almost mirrored each other — when one went up, they both went up.”
“At the moment, processors or packers are using pricing formulas that don’t work, and they haven’t worked since 2015,” he said. “They work for them — they’ve done quite well getting profitable every year — but they don’t work for producers.
“We have to get to a point where there’s fair sharing in what the value of the pork is in that pig.”
In the last five years, the average producer has lost about $6 a head, he said.
“Our processors have refused to acknowledge this as a problem, and they’ve refused to come to the table to work with producers.”
In contrast, Quebec producers — which operate under a form of a single-desk system — get a price based on the cut-out value. Toward the end of January, Olymel in Red Deer was paying Alberta producers $1.65 per kilogram (about five cents below their cost of production), while the same company was paying Quebec producers $1.90 per kilogram, said Bushell.
“That’s a full $25 per head for a hog,” he said. “We should be at least equal to Quebec. If we were equal at $1.90 per kilogram, that’s the difference between producers stabilizing, repairing, or rebuilding their barn.
“Our packers refuse to see this. They’re bound and determined to force producers to keep producing at a loss, and they think that’s going to continue to happen. The problem is, it’s not, and then our industry is going to take a huge hit.”
That’s already happening, he added.
Over the past five years, only six new hog barns have been built in Alberta, while roughly 25 have closed.
“When you’re only dealing with 200 commercial producers and you know in the last three years that we have 25 — maybe more — leaving the industry, that’s a huge change,” said Bushell. “We’re going backwards very, very quickly.”
Many barns are older and in need of replacement but low prices mean more producers are likely to exit the industry if the pricing formulas don’t change, he added.
“If that trend continues going forward, in three to four years, Alberta’s not going to have a hog industry as we see it now,” he said. “Then all of us will be scratching our heads at what happened to the Alberta hog industry.”