Canada hog farmers selling barns as losses mount

Tue Jul 28, 2009 1:50pm EDT
 

By Rod Nickel

WINNIPEG, Manitoba (Reuters) - Canada's hog industry faces its biggest crisis in 60 years, forcing many farmers to cut their losses by selling their herds -- if they can sell them at all.

The industry is reeling from high feed prices, a buoyant Canadian dollar, smaller exports to the United States and a disastrous association with the H1N1 flu outbreak that has closed some export markets.

"I'm living on borrowed time," said Bill Vaags, who started raising pigs in 1964 and was once one of the largest pig producers in the western province of Manitoba. His 1,200-sow operation is one-third smaller than it was two years ago.

Without substantial government aid, Vaags said he'll likely sell his Dugald, Manitoba hog operation by fall.

Getting out isn't easy, though.

"There's guys who want to get out but they're not prepared to sell their barns for 25 cents on the dollar," said Andrew Dickson, general manager of the Manitoba Pork Council. "There are people prepared to buy but they say it's a high risk."

Canada has lost about 1,000 hog farmers, or 11 percent, in the past year, Dickson said. The sow herd has fallen 13 percent over three years.

On paper, hog operations once worth millions of dollars are now worthless in the banks' eyes after years of losses, with farmers now losing about C$30 ($27.78) for every pig they market.

"The equity we had is gone," Vaags said. "The bigger we got, the harder we fall."

Chicago Mercantile Exchange August lean hog futures were trading at about 57 cents per pound on Tuesday, down about 25 percent from near-month prices a year ago.

American hog farmers are also losing money for many of the same reasons, but the Canadian industry is also struggling to find markets for live hogs that went to U.S. packers before restrictive country of origin labeling laws changed their buying patterns.

The Canadian dollar is now trading at more than 92 U.S. cents, making exports like pork less competitive.

The problems add up to a shrunken industry placing big expectations on a government rescue. The Canadian Pork Council has asked Ottawa to loan farmers at least C$800 million ($741 million) annually, based on a C$30 per head payment that recognizes weaker prices arising from losing export markets leery of H1N1 flu, which was discovered in April in a single Canadian herd.

The pork council is also asking the government to help farmers get out of the industry by paying them C$500 per sow on top of market value in an effort to shrink supply to raise prices.

Farmers could cull an estimated 100,000 to 200,000 sows under the program, said Jurgen Preugschas, president of the pork council, meaning Ottawa's sow top-up could total C$50 million to C$100 million.

The result would be an industry that, by design, would shrink 18 percent by 2014 to producing 25.5 million pigs -- the largest cull in the industry's history, Preugschas said.

Agriculture Minister Gerry Ritz has said for weeks that a response is imminent.

"It sounds like they're supportive," Preugschas said.

But a sobering thought tempers optimism. No matter how deeply Canada cuts production, the North American industry's rebound hinges on whether the U.S. does the same, considering its six times greater production, Preugschas adds.

($1=$1.08 Canadian)

(Editing by Marguerita Choy)