I’m sitting in the London, Ontario airport following my participation in the 35th Annual Ontario Pork Congress. While many have heard about the Canadian situation, a visit with producers and allied industry really is a good wake-up call to the global decisions that impact local production.
One of the most common questions I was asked as I walked the trade show was – Does Canada have a future in pork production? Being a person with a good extension background, my immediate answer was – that depends! The ‘ifs’ that go with ‘that depends’ are huge for Canadian producers, and worth keeping in mind as we in the US struggle with floods, high grain prices and welfare issues, etc.
Let’s begin in Ontario – once the second largest province for pork production in Canada. Producers here are actually feeling good about grain prices – for years they had a ‘plus’ corn basis to Chicago so they have been aware of high ingredient costs much longer than the Midwest producer. Recently, the local basis is the same as northwest Iowa – they can source corn for approximately the same price as a Sioux County, Iowa producer. Sounds like a good deal for Ontario until you learn that their only major packer, Maple Leaf Foods, intends to close the slaughter plant in Burlington in the very near future. That leaves many farrow-finish producers without many options for a market for their pigs. Until COOL is fully implemented in the US, these producers don’t see many market opportunities in the US, either in Ohio, Pennsylvania or Indiana. While some producers have adjusted and are now producing pigs for niche markets, many are facing a future that most likely won’t include pork production. The general consensus of the producers and allied industry members I talked with the past 2 days is a much different swine and most likely smaller swine industry going forward.
In Manitoba, they have the Maple Leaf plant at Brandon increasing slaughter capacity, at a time when the provincial government has placed a moratorium on new facilities. Couple this with a very strong Canadian dollar which makes Canadian product cost more versus US product in such markets as Japan and Hong Kong, and high feed prices, and you have a picture of another provincial industry struggling for direction.
In Quebec, there are on-going discussions between the provincial government and the pork industry as to the direction of future governmental support programs. Similar to other provinces, the relatively small size of their slaughter plants (and the resulting high costs) is impacting their ability to compete in a global economy.
In Alberta, they have extremely high labor costs due to the competition for labor from the oil shale fields. However, they have a provincial government that has announced its support for keeping their industry a part of their rural economy.
The study of the current Canadian situation is important for US producers trying to understand their future as they face flooded fields, high (and going higher?) grain prices. The current relatively weak US dollar versus other world currencies has made US agricultural products even more competitive in the global market. The good and bad news of this is that live hog prices would be considerably lower right now if we weren’t able to send so much of our product to other countries. At the same time, feed grains from US sources are also very competitive, meaning even with our relatively high prices, other countries continue to buy US feed grains.
Does the US have a future in pork production – no hesitation here on my part – YES. Pork is the preferred animal protein for the world, with a 40% world market share. The US has the feed grain resources, the slaughter and processing resources and the financial resources to continue putting the package together as the worlds second largest supplier of this desired commodity.
Who will succeed in pork production in the coming years? I wish I knew the answer to this question. Prior to the impact of the ethanol boom on feed grain prices, many had argued that the most successful had a production model tied to purchase of feed grains since the government farm program resulted in a world grain price lower than the cost of production. In the post ethanol boom era, pork production tied to a land base for production of feed grains suddenly has the chance to become very competitive.
However, access and use of capital will be an issue, both for feed grain and pork production. This suggests that innovative business models will develop in the next few years whereby those with access to capital will link grain production and pork production in some type of bridge relationship. One of the keys to the successful bridging will be the value of swine manure – Liquid Gold to the grain production side of the equation. Access to feed grains at a competitive price is what the pork production partner is looking for. Access to capital and slaughter plants become the linkage pulling it together.
This linkage model suggests that pork production will continue to consolidate, both in ownership and in location. Pig manure has become too valuable to feed grain production to store it in lagoons so that large amounts of nitrogen can be lost to volatilization prior to land application. Iowa already has almost 30% of the finishing pigs in the US. This can be expected to increase. At the same time, there will be renewed interest in returning pork production to Illinois, once number 2 in the US for pig numbers. Southern Minnesota will keep it’s share of pigs also.
Corn and pigs – our grandparents really were on to something good for rural communities.