Managing pork production risks

At a time when hog producers expected to profit from their labours, a rising supply of American pork and tariffs on U.S. pork exports saw Canadian hog prices drop as much as $55 per animal in June. The Canadian Pork Council estimates the sudden decline resulted in losses of $125 million for the Canadian hog industry between June and September.

“It’s a cyclical business,” says Rick Bergmann, CPC chair and a hog producer in Manitoba. “We typically see a downward market late fall, early winter. We do what we can to prepare for it.”

Eric Olson, a farm management consultant in Winnipeg with MNP Ltd., says hog producers are already good at managing risk.

“Over the last 15 years, the hog industry has seen more than one significant downturn, so hog producers have had to become leaner and meaner than other industries,” Olson says.

Moving forward

There are steps producers can take to manage their risk. For the short term, the CPC encourages producers to continue to focus on biosecurity.

“PED and African Swine Fever would have a devastating affect at a time it’s really unwelcome,” says Gary Stordy, CPC’s director of government and corporate affairs. “We don’t want those diseases.”

The CPC also recommends producers ensure their costs are in line with production.

“A couple of years ago, producers became more efficient by watching energy consumption and feed rations and managing expenses,” Stordy says. “Now is the time to really look at that again.”

Olson recommends producers take a step back to look at the market and understand why prices are down, what factors led to the price drop and what changes in the market will bring them back up.

“This helps producers assess how long the downturn is going to be, and how long they may have to operate on their reserves,” says Olson, who also recommends producers hold back on capital investments. “During a downturn is the time to reserve cash and resources.”

Producers should also talk to their financial advisors for advice. Farm Credit Canada, for example, announced it is working with its customers to find solutions, including considering deferral of principal payments and/or other loan payment schedule amendments to reduce the financial pressure on producers impacted by the price drop.

Bergmann is optimistic.

“We have a great business in Canada with pork production," he says. "We have a great product and we’re highly respected. We just need to stay viable on the farm, and we will.”

Bottom line

The sudden decline in hog prices had a significant impact on Canadian hog producers, but prices are increasing and the industry is showing more stability. Support is available, and there are steps producers can take to help manage risk.

Canadian hog prices are strengthening. In the meantime, experts advise managing risks and assessing capital expenses.

Article by: Trudy Kelly Forsythe