Farm & Country PORKNovember 16, 1998
Staying afloat
BY ROBERT IRWIN
The good news is the recently increased hog numbers affirm, as industry leaders had been hoping, Ontario producers have renewed faith in the Ontario pork industry. The bad news is the timing couldn't be worse as abattoirs across North America scramble to handle increased production, plunging the Ontario pool price to its lowest level since January 1992.At press time, production exceeded processor capacity, the run for the third week in October hit an all-time record 104,943, and pigs were backed up on Ontario farms. "All of a sudden it's just jumped to a new tier," says Ontario Pork forward contract specialist Stuart DeVries.
"It would have been 109,000 if we could have handled them all," DeVries says of the week's run which after the previous short week created by Thanksgiving amounted to a whopping 21,601 increase over week earlier. Along with government and other analysts, DeVries had been anticipating hog runs to remain below 100,000 this year; but now he concedes numbers could reach 115,000 by Christmas.
American states and Western Canada have been the focus of expansion talk during the past two years. Now Ontario has shocked almost everyone by unexpectedly posting what may be the greatest percentage increase anywhere.
One thing everyone agrees on is Quebec producers with their provincial stabilization program recently sweetened by a $9.50-per-hog pre-election government handout are more comfortable than their counterparts in other pro-vinces. Still, there's grumbling among producers there over shipments of contracted Ontario hogs to plants in La Belle Province already straining to handle home-grown pigs.
At press time Quebec handled 12,000 Ontario pigs while stateside IBP and Indiana Packers swallowed 11,577. Total U.S. marketings have exceeded two million pigs per week for the past six weeks.
Despite official assurances from National Pork Producers Council leadership that free trade is here to stay, and despite the windup of the recent border blockades in Western Canada, Canadian officials are privately worried by anti-Canadian sentiment said to be building among some NPPC and state officials. One other question mark hanging over Ontario's industry at press time is the labour situation at Quality Meats, where workers are into their second month working without a contract.
Given current North American marketings and limited shackle space in every direction, any disruption at Quality would likely hurt producers far more than the infamous strike at Maple Leaf's Burlington plant.
In light of the current glut, have pork board officials who worked hard to stimulate expansion for the past few years been caught by the old axiom about being careful what you wish for because it might come true?
"No, I don't think so," responds Ontario Pork chairman Will Nap who notes Ontario numbers have little to do with low pork prices world-wide. "We've always encouraged expansion as long as it's based on sound financial principles," he stresses.
Nap, who observes "some producers are really hurting," finds some have avoided the "horrendously low" prices by forward marketing using the board's Window contracts. He says Ontario Pork is opposed to any government bailouts or subsidies that would provoke a U.S. countervail response, but is solidly behind a Canadian Pork Council proposal to launch a federal-provincial "disaster relief program."
The plan undergoing intense discussions between government, farm organizations and commodity groups in recent days would probably guarantee producers between 50 and 80 per cent of margins over the previous three years. It won't likely be in place before summer 1999.
Any payout might only come in the following year's income tax refunds.
Pork board director Carl Moore, who stepped down as Ontario Pork chairman last March, insists "the Asian market is still good. Sales to Japan are going up month by month on a North American basis."
A one-time banker, Moore says he's been warning producers "since last fall that it's very foolish to try to cash flow barns at $180-$200 [per ckg], which a lot were doing, when our long-term average is $150 $160."
Moore says all Ontario producers are "hurting right now" but he sees feeder producers and farrow-to-finish operations hit hardest. In recent weeks he's been stocking his feeder barn with bargain-priced 28 kg feeder pigs from Quality Swine.
"They're beautiful pigs and for somebody to sell them to me for $27 or $28, that's pathetic; that person lost $20 to $30. Maybe I'll lose some more on them too but I don't think the industry can be that bad."
Doug Maus, with M & F Livestock in London, which moves large volumes of feeder pigs from Canada to the U.S., says "there's still good demand, just with no good price attached." He speculates there has been no significant liquidation yet because "I don't think a lot of these guys know what to do.
"My guess is that we got rid of a lot of the weaker players in '94-95 and we're going to have to get rid of a couple of warriors this time and nobody wants to be it."
Pork board director Andy Ernewein worries the price downturn may be different from others which have hit the industry every few years. He and fellow director Liz Samis represented the board at a recent U.S. lenders conference where a study on the changing structure of the industry showed farms producing more than 50,000 pigs annually are now responsible for 37 per cent of total U.S. production. In 1988, those farms accounted for just seven per cent.
Ernewein, who runs a 40-sow farrow-to-finish operation near Walkerton, notes U.S. producers putting out fewer than 1,000 pigs were responsible for 32 per cent of the hogs in 1988.
"Today, that category of small producers who used to create the cushion (respond to prices by entering or leaving the industry) only produce five per cent of the hogs. They're not there anymore to create the cushion," Ernewein warns.
"I don't think the glory days we've seen in the past with extremely large profits will be there," confirms John D. Lawrence, associate professor of economics, Iowa State University and author of the study cited by Ernewein. He predicts prices will return to break-even levels of more than 40 U.S. cents per pound liveweight by mid-summer.
"The following year, when if history had repeated itself we would have been into the $60s and upper $50s and very very profitable conditions in the year 2000. I don't think that part of the cycle will return," Lawrence forecasts.
© copyright 1998 Agricultural Publishing Company Limited.
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Smoother sailing ahead?
There are hopeful signs on the horizon as Ontario pork producers struggle to stay afloat in a sea of red ink
* Weekly provincial hog run could hit 115,000 by Christmas, indicating underlying confidence in the future* Some producers have avoided the horrendously low prices by forward marketing using Ontario Pork's Window contracts
* The Asian market is still good, with North American sales to Japan increasing month by month
* U.S. demand for feeder pigs remains strong
* Prices are forecast to return to break-even levels of more than 40 U.S. cents per pound liveweight by mid-summer
© copyright 1998 Agricultural Publishing Company Limited.
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Help is as close as the telephone
Saskatchewan Pork International (SPI) Marketing Group chairman John Germs was recently quoted in media reports as calling for that province's NDP government to provide at least $20 million in emergency aid to keep hog producers in business over the next six months. For the past few years the province has aggressively promoted hog expansion.Marilyn Jonas, production systems specialist with Pork Central, the provincial government agency established in January 1997 to help increase production from one million hogs to three million by 2004, says those with highest production costs "will be in deep trouble right now. Others with lower costs are on the edge where a certain amount of belt tightening will help them weather the prices at least for a while."
Jonas' remedies must be tailored to individual situations but she offers what she terms "gross management solutions" for Saskatchewan producers that suit some Ontario operations.
High-cost producers
* Shutdowns with or without bankruptcy
* Shutdowns where they look at contract situation with another production group (they pay their bills off with the depopulation and set up a contract situation to help pay for their facility and labour)
* Bring more capital in through investors
* Work with banks to recapitalize operating and long-term loans
* Extend lines of credit with suppliersMid- and lower-cost producers
* Increase sow throughput to help decrease fixed costs
* Decrease personal withdrawals and live off other parts of the farm or off-farm income
* Increase personal hours of work and of other staff rather than replacing people if someone has left; or let casual or part-time staff go and fill the gap with own labour
* Utilize feed grain supplies on the farmRegardless of which category a producer is in, Jonas urges anyone who "feels they may be in difficulty" to "look for outside assistance." Help could come from a herd health veterinarian, business consultant, or provincial government extension specialist.
"The important thing," she stresses, "is to share the burden with others and to not be afraid to seek assistance to get you through the crunch." - Robert Irwin
© copyright 1998 Agricultural Publishing Company Limited.
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Strategies for low hog prices
With feed costs hovering around 70 per cent of the cost of raising a pig on today's market, Ontario pork producers will surely be reviewing feeding strategies this fall and looking for areas to reduce costs.Be careful, though: Don't panic and run out and grab the chainsaw and start cutting costs. Gather the pertinent information, study it, and then react in a manner that will benefit you.
Remember: Good feed suppliers who rely on your business to make a living realize that your success is their success and that your business is important to them. They will help you analyze your farm's feed usage records, tour your facility with you to review pig flow and density, and review with your veterinarian any health strategies currently used at the farm.
Here are some key feeding areas that can be adjusted quickly with a minimum of mechanical or physical changes.
Feed additives, growth promoters
Are we adding something to the ration to improve feed efficiency? Is it still necessary at today's feed prices? Let's look at an example of a growth promoter added to a finishing diet from 75 kg to 110 kg (market). Let's assume we received a two-per cent improvement in feed efficiency by adding this product and the cost of adding it was $5 per tonne of finished feed. Low Cost Strategies: Growth Promoters shows the economics.Based on this example, using today's high lean average feed costs, even an improvement of two per cent in feed efficiency resulted in a loss of 13 cents per pig. If the product added happened to be an antibiotic, not only is money lost, but we may be feeding drugs unnecessarily to animals. Consumers can quickly lose confidence in an industry.
Therapeutic antibiotic use
Health problems do occur in livestock. The proper use of the proper antibiotic at the right time can reduce mortality, improve the pigs' quality of life, and improve the economics of pig production. Manufacturers of antibiotics for livestock want pork producers to work closely with veterinarians to use the drugs correctly and safely. On the other side, drugs used incorrectly, with little or no response to the livestock, can cost swine producers big bucks.To bring this into an economic perspective, Low Cost Strategies: Medication shows approximate Ontario costs per tonne of complete feed for some commonly used therapeutic and growth promoting levels of antibiotics cleared for use in Ontario swine feeds. For specific claims, cautions, warnings, and feeding directions, consult the manufacturer, veterinarian, or feed company.
To help bring Low Cost Strategies: Medication into perspective, consider this scenario. You are adding a vitamin-mineral premix to your ration at 30 kg/tonne of complete feed and you are able to save $100/tonne of premix. The result would be a cost reduction of $3/tonne of complete feed. Any savings per pig produced would only be realized if performance was not reduced.
Cost of commodities
It is also time to consider the commodity costs of corn and soybean meal. OMAFRA provides an excellent review of your past and current commodity costs in the Pork News & Views newsletter. Low Cost Strategies: Commodities (above, facing page) shows a five-year history with current year to date until the end of September 1998. Yearly averages of market prices of hogs from Ontario Pork dressed weight charts are also shown.Another way of evaluating costs is to look at the total return per bushel of corn received (not including labour costs) over the past five years, plus year to date until the end of September, '98. Low Cost Strategies: Economics shows this data using high lean diets and carcass weights of 84 kg adjusted to 107 index.
Many other factors can influence feed costs, but these may involve management or equipment changes. The following are some areas of concern, which may be evaluated fairly easily.
* Feed grind. Particle size or grind of the grain portion of a diet is preferred to be 700-800 microns. Smaller, and feed intake and stomach ulcers are a concern. Bigger, and feed efficiency is reduced. Take immediate action by rotating the hammers in the mill or by changing screens.
* Feed wastage. New-style feeders have helped but let's not let down our defenses yet. Check feeders daily to ensure that 30 per cent of the bottom of the feeder can be seen. More, and limit feeding the pigs can occur. Less, and wastage can occur. Replace worn out feeders.
* Shipping weights. Certain genetic lines can go to heavier weights without putting on extra fat. Check index (if measured) and weigh pigs during the last two weeks before market to evaluate growth and feed intake. Heavier hogs will also be in the barn longer, so extra barn space is required. OMAFRA estimates that it costs 17.5 cents per head per day in the finishing barn.
* Target feeding. Feeding a set amount of feed per pig can save dollars, especially in the nursery on the first two or three diets. Reducing the energy and protein (amino acids) levels in rations of top-end finishing pigs two to three weeks before market can also yield good returns in certain genetic lines. Separate feed lines will be needed in many cases.
* Split sex feeding, housing. This practice can result in better barn flow, especially if high lean diets are utilized on gilts and standard lean diets on barrows. Extra feed lines may be required to phase feed separate diets properly.
Ken Palen is livestock specialist with Kenpal Farm Products, Centralia
© copyright 1998 Agricultural Publishing Company Limited.
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Fine-tune your feed costs
Prairie Swine Centre researchers John Patience, Harold Gonyo and Stephane Lemay recently studied production points producers should review in tough economic times. For example, overfeeding calcium and phosphorus by 0.1 per cent can cost $1.25 to $1.50 per pig.High nutrient levels boost pig throughput but the researchers stress a ration which makes sense when pork is $1.95 per kg may be impractical when it falls to $1.45. Overfeeding lysine can cost $3 to $5 per pig.
"Smart buying of ingredients," the study found, can "easily add $2 to $3 to the bottom line." Five-per cent feed wastage costs at least $3 per pig.
Nipple drinkers typically cause water wastage of 40 per cent, increasing the cost of manure hauling by 60 cents per pig. Wet-dry feeders are the answer, the researchers say.
Many factors dictate optimum shipping weight. An earlier study showed even a modest change in shipping weight can increase or decrease net income by $2.50 per pig.
Every extra pig sold per sow per year reduces cost of production by about two per cent or $3 per pig sold. Split sex and phase feeding increase net income by about $4.50. - Robert Irwin
© copyright 1998 Agricultural Publishing Company Limited.
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