Canadian Press
November 30, 1998

Hog prices sliced but pork prices stay fat

by MICHAEL MACDONALD

The story says the Canadian Pork Council and Consumers Association of Canada are among groups concerned about the pork price spread between producer and retailer.

It is noted that calls to major pork processors, including Maple Leaf Meats and Schneider Corp., were not returned. Some of Canada's largest grocery chains, such as Loblaw's and A& P, also failed to respond.

Rick Cooper, a director of Agriculture Canada's Food Bureau, is quoted as saying retail prices of pork have come down, but not nearly as fast as the prices paid to the farmer.

Cooper stressed that virtually all pork products require processing, such as curing and seasoning, which entail static costs that haven't changed.

National Post
Monday, November 30, 1998

Canada takes grievances to Washington

Deep Differences: Ministers seek urgent meetings to settle rifts Peter Morton and Charlie Gillis Financial Post / National Post, with files from Reuters

The Post reports Lloyd Axworthy, minister of foreign affairs, and Lyle Vanclief, minister of agriculture, have each planned meetings this week with their U.S. counterparts to ease festering differences they believe they can no longer ignore.

The story says Mr. Vanclief is in Washington to defend battered Canadian farmers against complaints by U.S. producers, who say the Canadians are dumping their goods south of the border at deflated prices. Pressure on the agriculture minister is said to have increased yesterday with news American farmers plan to block the border to Canadian grain imports on Dec. 6 if there is no progress during the talks.

Ottawa Citizen
Sunday, November 29, 1998

In a letter to the editor Lorne Nystrom, MP Regina-QuAppelle and NDP financial institutions critic, says the government should tax bank profits to help farmers if the country's lenders don't respond to the current farm economic crisis. Nystrom wants banks to provide guaranteed loans and initiate a temporary moratorium on interest rates until proposed federal funding reaches farmers.
He claims such assistance "would only represent two to three per cent," of the amount two of the banks have pledged to loan small business, if the government allows their merger plans to proceed.

Kitchener Waterloo Record
November 27, 1998

Picture not likely to improve until farmers leave business research economist believes.

by Mike Strathdee

The article says "governments can't bail out Canadian farmers by purchasing pork to use as ad hoc aid for other countries." Larry Martin director of economic research at the George Morris Centre is quoted as saying the move would have little effect on Canadian pork prices.

He also advocates closer relationships between producers and processors to share risk. Forward contracts, and hedging are among other solutions to wild price swings, Martin offers.

There is no apparent liquidation underway according to sale barn operators contacted, but more spectators are reportedly turning up at sale barns, apparently reflecting strong interest in market conditions.

Hog Market Collapses on Glut of Animals

November 27, 1998 / Wall Street Journal / Scott Kilman
- The Wall Street Journal reports "Some economists are predicting as many as 20% of the nation's 122,000 hog farmers will quit the business by next summer. "

One producer cited in the article has sold his 1400-sow breeding herd and laid off 7 employees. Another figures a loss of $44 on each of the 40 hogs he will deliver to a packing plant today.

Calculations from Ag economist Chris Hurt (Purdue University) are cited as to show that meat processors and retailers are taking $4 billion more this year from pork sales compared with last year, at the expense of farmers and consumers.

The article says a few supermarket chains, are beginning to lower meat prices. They are said to have cut prices of most pork cuts, by about 30% since the summer.

The most recent USDA monthly survey (October) reported a retail price weighted average of $2.302 a pound for a composite of pork cuts. This translates into a record-low 18% share of the consumer dollar going to live hog producers.

IBP, Smithfield Foods, and Bob Evans Farms, have posted record earnings. But the article says Hormel, in its most recent earnings statement released this past Wednesday, reported only a 1.1% increase in profits, which was below Wall Street expectations.

Because of long-term market hog purchase agreements Hormel has with pork producers, its cost of raw materials has not dropped as much as its competitors. Gary Ray, Hormel's executive vice president, said they expect to recoup their additional expenses over the five-to-ten year life of the supply contracts.

Because Hormel's contracts are a ledger-type, pork producers are accumulating large negative balances in their accounts. Some bankers are staring to worry that their producer clients will end up owing Hormel a lot of money if hog prices stay low throughout the next year.

Still, other industry analysts such as National Pork Producers Council consultant Glenn Grimes, are reportedly suggesting that beginning mid-2000, the live hog side of the US pork industry could be in store for 3-4 year of above-average profitability, which will help producers recover from their current negative ledger account balances.

Hog Glut a Recipe for Farmers' Ruin

November 27, 1998 / Chicago Tribune / SIOUX FALLS, S.D.
- The Chicago Tribune reports farmers with average-size hog operations are losing $1,000 a day or more. The cost of raising and selling hogs -- including feed, labor, buildings, veterinary care and transportation -- exceeds the prices farmers are being paid by $50 to $75 per animal according to the Trib.

With that kind of red ink, the article says, farmers in Iowa, Illinois, Indiana, Minnesota, Oklahoma, Nebraska, Missouri and Wisconsin are having difficulty buying feed for their animals, much less paying off debts they've taken on to build new facilities or buy new equipment. Bankers have reportedly come calling, and foreclosures have become a distinct possibility for financially weak operations.

Contract arrangements between farmers -- such as set-price agreements for one farmer to breed hogs and for another to raise the animals after they are weaned -- are breaking down because farmers can't afford to keep up their end of the bargain, the article claims. Even farmers being paid above-market prices for hogs under existing agreements with meat packing plants are in apparently in trouble.

The difference between what they're receiving and current market prices is being booked to their accounts to be paid back at a later date, becoming the what the article describes as the farming equivalent of high credit card debt.

"The situation we're seeing is not just bad, it is catastrophic," the article quotes Chris Hurt, an agricultural economist at Purdue University as saying. He noted that current hog prices, adjusted for inflation, are the lowest in U.S. history.

The last time hog prices dropped to current levels -- between $14 and $17 per hundred pounds in Illinois, based on Wednesday's market quote from the U.S. Department of Agriculture -- was April 1964. But adjusted for the effects of inflation, current prices are at least one-third below those previous lows, while farming expenses are much higher.

"This is beyond any experience we've had in the last several generations," Hurt said. "All previous benchmarks do not apply." He estimates that hog farming losses in Illinois alone will come to more than $1.5 billion this year, and will create an economic ripple effect in rural communities across the state.

To help ease the current bottleneck in production, the Trib says meat packers have begun running their operations on Saturday and even Sunday, and adding more shifts. Farmers this quarter began reducing the size of their hog herds, the impact of which should be felt 10 months down the line.

The article notes National Pork Producers Council has stepped up efforts to promote pork at the meat counters in supermarkets through a major couponing drive. Those steps could help hog prices approach break-even levels by next summer, said John Lawrence, extension livestock economist at Iowa State University.

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