Prairie Hog Country – Weighing Risk Against Opportunity

An attempt to disband Alberta’s 50-year-old pork board has turned into a frank and open discussion of the industry’s future in Western Canada.
Delegates and guests from around the province were gathered in Calgary for Alberta Pork’s 50th Annual General meeting when a pair of producers presented a resolution to disband the organization. They suggested replacing Alberta Pork with a different model, oriented to marketing animals with a desire to get a better price.
The resolution was defeated, but not without raising some relevant and emotional discussion among producers who are worried about the future of their industry, said Chair Brent Moen afterward during an interview with Prairie Hog Country.
“At the end of the day, it was defeated, and for a number of reasons. In my opinion, it probably was not the best way to go. We have an absolute problem in our industry that we as producers . . . have had largely negative returns for the last number of years,” said Moen.
Alberta producers, who have not made significant profits since hitting a peak in 2014, are looking at the cost of updating or replacing their facilities, and then asking why they should invest money in facilities when they don’t see much promise in the future.
“We’re in a very emotional state, as producers. Our backs are against the wall, there’s a tremendous amount of frustration, but they’re looking for change,” said Moen.
“I look at (today’s meeting) as a turning point. It’s a huge positive. We’ve got our emotions out on the table. We also had exposure today that really opened up a lot of eyes to the opportunities, so I think it’s a game changer relative to the potential change in momentum.”
Industry contraction by 25 per cent since 2006 has not been good for the producers or packers, said Moen.
“The less pigs that we kill on our shackles, the less competitive our industry is, right? And in the long term, that will spell our industry’s demise.”
The motion to disband brought those frustrations into the open, while producers heard some consistent discussion during the afternoon presentations about incredible opportunities balanced against some very real threats, both political and biological.
“As one of the presentations showed today, we have one of the highest quality products in the world. It is sought after by many many markets in the world, and they pay a premium for that,” said Moen.
“We’re faced with a huge opportunity as an industry, if we can come together and work out our differences and work really as a vertically co-ordinated or vertically integrated industry, as true partners the will allow both partners to make a profit.
— continued on page 18
— continued from page 17
“We can’t change the past, but we do have the ability to shape the future,” he said.
One of the key messages coming out of the afternoon presentations was speaker Vincent Cloutier’s discussion of the collaboration between packers and producers in Quebec, said Moen.
In his talk, Cloutier discussed the development of a legal framework to ensure fair distribution of wealth with recognition for the quality of hogs and their value in the North American market. Conventions are established and updated periodically within that framework. The current convention was updated on April 30 of this year and made retroactive to February 6, when the previous convention expired.
“We are convinced, notably through (Canadian Quality assurance and Canada Pork Excellence), that we do something that is worth recognition above US indicators,” said Cloutier. Quebec producers were given a premium of $2 per hog after seeking $5.
“But as we’ll see, the true game changer was the cutout,” he said.
When the price of live hogs is between 90 and 100 per cent of the cutout, farmers receive that amount of money. In July, the price was above the cutout, so the cap price applied. However, in September and October, the price went to 65 per cent of the cutout.
“On a yearly basis, this cutout adjustment brought $7 a month more to Quebec farmers. That’s something very meaningful.”
Cloutier said the discussion has started now around changes to be made in 2121, when negotiations open on creating a new convention. He said it is difficult to determine the role various events will play in those negotiations, including the impact of Olymel owner La Coop fédérée’s pending purchase of F. Ménard and Sollio. That purchase is still subject to Canada Competition Bureau review. If the purchase is completed, La Coop féderée will control 75 per cent of Quebec’s packing and processing industry, said Cloutier.
If Cloutier set the stage for better relations between producers and packers, then the next speakers followed up with their descriptions of huge opportunities and potential perils coming in the months, years and decades ahead.
“What happens in the industry, right now, it all comes down to US and China relations,” said Steve Dziver, risk management specialist with Winnipeg-based SAMC Farm Management Professionals.
Dziver discussed various factors affecting pork markets, including a review of the most recent Gira report on global meat markets.
Gira’s graph for the past 12 years shows incredible volatility in pork markets, with prices already low and continuing to fall in 2018.
Even by the end of June, the markets had not realized the impact of African Swine Fever in China, said Dziver. Until recently, the affected pigs had been consumed internally because ASF does not affect humans.
“That’s changing. We’ve only now begun to realize how big this thing is, and it’s going to be even bigger,” said Dziver.
He said November will be a month to remember, starting with China lifting the ban on Canadian pork. That’s great news for the packers, but it is not going to bring an immediate change in prices, he said. However, there is a huge opportunity for Canadian farmers as China rebuilds its herd, he said.

“The next five years are going to be a lot different, I think, than the previous five. There’s going to be money in the market.”
One sure sign of China’s search for pork substitutes is that, on November 14, it lifted its ban on US poultry. The ban had been placed in 2014 when flu discovered in US flock, and then maintained even though the flock was cleared in 2017, said Dziver. Additionally, China has started importing live hogs from Malaysia. China never brought live hogs in from another Asian country in modern history, he said.
“That says to me that we are only at the beginning stages of what will happen going forward.”
Brett Stuart, president and co-founder of US-based Agri-Trends predicted “dangerous business” in 2020.
Prices are shooting straight up with the loss of one quarter of the world’s sow herd, providing a clear signal to expand, said Stuart. It will take years for China to rebuild its herd, so there is a question of who in the world has room to expand and fill the gap, he said.
“Out of the top four protein producing countries on Earth, who is suited to expand? Brazil is the clear winner here. They’ve cut their interest rates, they have plenty of permitting, feed, labour – they’ve got access to China.”
US and Canada are also in a good position to expand with feed, access to capital and access to China, he said.
“Just give us a futures market with $20 premiums (per hundredweight), we’ll expand.”
But there are a couple of flies in the ointment, one being that the US is still heavy on hogs.
Alongside that is the fear that ASF will make the jump from Europe or Asia and cause a wreck here, he said.
“So what if we find ASF in North America? This will be harsh. It will be abrupt. Any effort we can take to make sure this doesn’t happen is worth every dollar and more. I think we will have the biosecurity to get our arms around it. The problem is export markets.”
Stuart offered delegates a baseball analogy in looking at how they manage risk over the coming months. He said you can hit for the fences and score big – or not at all, or you can play for the smaller gains with less risk and come out further ahead.
“Get your head above water. You’ve got to make hogs profitable. Be careful in volatile markets – the gravity is uphill, but we’ve got a lot of politics involved,” he said.
Manfred Kern, global head of business relations for Bayer Crop Science, wrapped up the discussion with a look at trends in meat demand for the next 50 years.
Meant to encourage Alberta Pork to hold its course to 2069, Kern’s presentation described a superhighway riddled with potholes.

Kern spoke about a huge demographic shift that will come along with population growth along the way, explaining that while per-capita meat consumption declines in parts of Europe and North America, there will be substantial increases as incomes improve in developing regions, especially India and China.
Pork production in Western Canada is poised to benefit from the collapse of production in China, where pork fills a key role in the culture as well as providing the most favoured source of protein.
A full recovery from ASF in China will take years, creating a strong push to profitability in Canada.
“I am convinced that the challenge for the hog industry is underestimated. Your prices will change in the future,” he said.
“Full recovery (in China) won’t take place at least until 2025-2027,” he said. China is pushing hard for a restart, with risk that they re-infect and fall back again, largely because labs have not yet been able to develop a vaccine that is effective against the virus.
China’s search for protein, in the meantime, offers prospects for tremendous profits in Canada, provided the industry develops and maintains a unified pork value chain, said Kern.
Overall, meat producers must understand that, in the search for new horizons, the image of their sector continues to become more negative, he said.
It is no longer good enough to say that you produce bacon and pork – future consumers will have higher expectations, including a commitment to practices that protect their health and their environment.
“Maple Leaf wants to become the first major food company in the world to be carbon neutral,” said Kern. This philosophy is not relevant in China or Africa, but it is the way of the future in other markets. The technology is available to reduce emission rates. Therefore, production systems will have access to technology for producing hogs without using fossil fuels and without producing emissions into the atmosphere or water systems, he said.
Looking 25 years into the future, Kern said his vision for Alberta is that it will be a leading global provider of high-quality pork, produced in systems that meet or exceed criteria for net-zero emissions and animal care.
“You have the perspectives, technologies and resources in your hands already,” said Kern.
Moen said the November 21 meeting was a turning point that will lead to further discussions for the pork industry, bringing producers together under one marketing program.
“I would like to see that, not only in Alberta; I believe this is a Western Canadian problem. I believe that we need to have an association that goes through boundaries, so if you look at the production in Alberta, Saskatchewan and Manitoba, and somewhat into BC … and if we do it as a region and we establish with the packers a mechanism that is fair and transparent and that will allow our industry to grow, it will be better for all of us,” said Moen.
“We’ve had 10 years of very tough roads, and we’ve still got a very strong group of producers; they’re innovative, they work hard, they’re good businesspeople, and so they’ve been able to exist. Because of that work ethic and long-term vision, I think, if we work together, we can make this a success.
“As Brett said today, good solid hits will win a lot of ball games.” •
— By Brenda Kossowan