Farmscape Article 2769  March 1, 2008

Canadian pork producers are welcoming new government initiatives to help them cope with what many consider to be the worst economic crisis ever to hit the Canadian swine industry.

Pork Producers Caught in Perfect Storm

A combination of low North American live hog prices fueled by near record U.S. slaughter numbers, escalating feedgrain prices fueled in part by increased demand from the biofuel industry and a strong Canadian dollar which has slashed returns for Canadian producers, has created what has been described as a perfect storm.

Ottawa Unveils Sow Cull Program and Amendments to Support Programs

Earlier this week Gerry Ritz, the federal minister of Agriculture and Agri-Food and minister for the Canadian Wheat Board introduced proposed amendments to the Agricultural Marketing Products Act (AMPA) designed to give Canadian farmers better access to cash advances.  He also announced a new sow cull program designed to assist producers who are either reducing  their herds or exiting the industry outright.

Proposed amendments to the AMPA include several changes to the Advance Payment Program (APP), which provides producers cash advances of up to $400,000.00.

Planned Changes to the APP include removing the requirement for livestock producers to use a Business Risk Management program such as AgriStability as security for a cash advance and allowing producers to use inventory as security. “Severe economic hardship" will be added as a condition to offer emergency advances, on the recommendation of the Minister of Agriculture and Agri-Food and the Minister of Finance. As well the security requirements for emergency advances will be revised and the emergency advance available to producers will be increased from a maximum of $25,000 to $400,000 in conditions of severe economic hardship.

“Producers will have quicker and easier access to cash advances,” says Ritz. “And, if all producers take advantage of the improved program, an estimated $3.3 billion in advance payments will be available.”

Improvements Welcomed by Pork Producers

“This is much needed help,” says Canadian Pork Council (CPC) president Clare Schlegel.

He notes, while this isn’t new money, the proposed changes to the APP will provide the breathing room  livestock producers have been asking for.

However he admits, “It doesn’t get us out of the woods by any stretch of the imagination but it is much needed help.”

Cull Breeding Program to Support Reduced Production

Meanwhile a new $50 million Cull Breeding Program will provide support for hog producers taking steps to exit the industry or permanently down size their operations. The objective is to reduce the national breeding herd by an additional ten percent over and above normal annual liquidations to more accurately reflect market conditions. Although details are still being worked out, producers will be eligible for a per head payment for animals slaughtered and reimbursement for slaughter and disposal costs based on several conditions including that they depopulate at least one barn and not restock for three years.

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Schlegel observes, “It appears, if we believe in the free market economy, that supply has to go down for prices to come back to where they need to be so hog farmers not only in Canada but around the world including the U.S. and Brazil can break even and make reasonable money.”

He notes, according to the December 31 Statistics Canada report, the Canadian breeding herd has already been reduced by close to 100,000 sows to 1.54 million from a peak of 1.63 million showing that Canada is doing its part.

“Make no bones about it. Unfortunately, due to the competitive situation, the Canadian herd is shrinking.”

Provincial Programs Offer Additional Localized Support

Meanwhile several provincial governments including Alberta, Saskatchewan, Ontario  and most recently Manitoba have come to the table with their own programs.

Between 500 and 600 producers are expected to take advantage of the new provincial loan program announced last week (February 21) by Rosann Wowchuk, Manitoba’s minister of Agriculture Food and Rural Initiatives.

The program, which will be administered by the Manitoba Agricultural Services Corporation (MASC), is part of a package to help cattle and hog producers cope with low livestock prices, high feed costs and a high Canadian dollar. It will provide $35.00 per slaughter hog and $10.00 per weanling sold between October 1, 2007 and May 31, 2008 and be repayable over eight years.

MASC vice president of lending operations Shep Kaastra says all of Manitoba’s swine producers are eligible.

“There’s a loan cap of $2.5 million for any one producer and the first three years are basically interest only at a reduced rate of 2.25 percent for the first year and 4.5 for years two and three of the program and then the loan is amortized over the remaining five years at a six percent interest rate. The six percent interest rate over the last five years would be a competitive rate which is the standard rate that MASC lends at.

We’re looking at potentially up to 500 to 600 producers accessing the program. Those are preliminary estimates.”

Loan Program Provides Trade Friendly Support

Manitoba Pork Council Chair Karl Kynoch says the new program will provide much needed relief for those producers who have run out of money to buy feed and pay other bills by providing  an immediate cash injection.

He stresses, “The government has put a lot of thought into trying to make sure this program isn’t trade distorting. If they would have come out with a straight cash injection the Americans would have definitely been looking at it and wanting to put on a countervail down the road.”

He says the support will allow producers to ride out the storm without being countervailable because it’s a loan, not a direct cash payment.

Wowchuk agrees, “The pork producers were very clear to us that they were concerned about trade actions and they felt that a loan program would be one that would not trigger a trade challenge. But, of course, we always have to think very carefully about trade because we are an exporting province.”

Uptake On Saskatchewan Short Term Hog Loan Program Running as Expected

Meanwhile a short term hog loan program, introduced in December to help Saskatchewan producers contend with cash flow problems, offers advances to a maximum of $5 million  per producer on pigs marketed from August 1, 2007 to May 2, 2008.  The loan amount available per pig is derived from a formula that is based on the weekly pool price. Interest is set based on the province’s monthly cost of borrowing and, for example, stands at 3.47 percent  for the month of February.

Current projections indicate 50 to 60 producers will make use of the program at cost of about $20 million.

Saskatchewan Short Term Hog Loan Program manager Jim Boyce says application are coming in according to expectations.

“We’ve approved about 30 loans and dispersed approximately $13 million to date.”  He notes, the last time such a program was offered in Saskatchewan,  in 2002, about 150 producers applied, but at that time there were 1,000 eligible producers.  “Now in the province the numbers have reduced to about 300 hog producers and unfortunately that’s dropping monthly as some producers are getting out of the business.”

Boyce acknowledges many  are looking at the program as simply another loan, and will choose not take part but, for the ones trying to ride out the storm, the interest rate is very favorable.

Pork Production Declines as Producers Make Tough Decisions

Mark Ferguson, a policy analyst with the Saskatchewan Pork Development Board, (Sask Pork) notes, “Producers right now are making a lot of tough decisions and they have to decide whether they’re even going to be in business in the next six months.”

He doubts producers who expect to exit the industry would take out loans.

“At Sask Pork we have fairly close contact with producers and we’re aware of about 8,000 sows that we believe are coming out of production. The Stats Canada numbers, so far, haven’t reflected that large  a decrease. We think they probably will in future reports as the barns are depopulated as  there are definitely producers exiting.”

Schlegel agrees, “Make no mistake about it, the Canadian herd is shrinking and will continue to shrink.”

He stresses, the Canadian industry is certainly living within its World Trade Organization (WTO) and North American Free Trade Agreement (NAFTA) commitments so hopefully, from a trade perspective, these programs will not prompt trade action.

“The programs are designed to be trade neutral and, when you put the sow cull program on top of that, they’re also designed to encourage, or at least to support, those who are choosing to exit,” he says.

Long Term Outlook Leaves Room for Optimism

Nonetheless Schlegel remains confident in the long term future of hog production in Canada.

“We have the resource base, we have very good producers,  good genetics and  good animal health.  From those perspectives there’s no reason to think  the Canadian hog industry shouldn’t succeed.”

“Frankly, as we’ve seen in China, at some point supply will go down low enough that there will be a major rebound in price. World markets continue to indicate that pork trade is increasing and, from a global perspective, one would think that there’s a good future for the livestock industry.”

Staff Farmscape.Ca