Plenty of marketing options to choose from

By ROBERT IRWIN

A flurry of packer and pork board activity has cast producers adrift in a sea of marketing programs.

Earlier this month, Ontario Pork announced its forward pricing program, a new risk management tool. It's the first in a series of producer opportunities which will eventually include a fixed price program, long-term contracts and window contracts.

The forward pricing program was developed by the Saskatchewan Pork Board and the federal government. The concept has been slow to take off on the Prairies, but it allows hog producers to choose a future price up to six months ahead. Producers pay premiums ranging from $0.25 to $14, based on the future price selected.

Although the program is based on the Chicago Mercantile Exchange, the transaction is in Canadian dollars, removing the currency fluctuation risk normally associated with commodity trading. To allow smaller producers to participate, each contract is 4,000 kg dressed weight, equivalent to 48 to 50 hogs.

Producers must assume the basis risk. That is the unknown variation in price between their normal market and Chicago. "We will inform producers of the historical basis for one, three, five and 10 years but the risk will still be the producer's," explains Andrew Marks, assembly director, Ontario Pork. When producers deliver their pigs, they still get the cash price if it is higher than the contracted price.

American countervailing duties, one of the strongest influences on basis, are nearing an end, according to pork board chairman Carl Moore. Last month, he joined negotiations with American officials in Washington, where he says an agreement was reached to reduce countervail to zero in the next few months.

The Canadian Pork Council (CPC) announced late last month that the U.S. Department of Commerce has lowered the countervailing duty on Canadian live hogs to about $0.01 per kg. The CPC says an ongoing U.S. review found the deposit rates of over $0.20 per kg for the majority of live swine exported to the U.S. from April of 1991 to March 1994 to be too high. The actual countervailable subsidy payable from 1991 to 1993 are around $0.06 per kg and $0.01 per kg for 1993-94, according to the CPC.

When producers register with Ontario Pork for the program, they receive a personal identification number. Then they can set up contracts by telephone. Each contract carries a $55 administration fee.

"If we get volume through here, our transaction fee would reduce," Marks says. At press-time, completed producer applications were already flowing in.

Maple Leaf Foods also offers a price protection option as part of its Signature Pork Program announced in late August. The company, which hopes to boost current 30,000 hog runs at its Burlington plant to 60,000 with Signature, touts benefits for committed producers of about $8.25 per pig.

There could be lots more pigs available if Schneider's eventually closes its Kitchener kill floor as reported in some circles. Still, Maple Leaf is committed to Signature, according to Maple Leaf chairman and CEO Archie McLean. Ontario Pork's Carl Moore is enthusiastic about the Maple Leaf initiative. "Our aim is to get all the packers to come out with programs that describe the pig they want and what they're willing to pay for it."

Moore says it's important for producers to study all options. "The majority of pigs are on the auction and may well still remain there."

Moore ships pigs from his own farm, near Embro, to Maple Leaf under a contract negotiated two years ago. Known by many names including the Tavistock grid and the Maple Leaf heavy grid, the Signature specification favours pig carcasses between 80 and 95 kg.

"If you're shipping a lot below 79 kg, the Ontario grid is better," Moore says. Does the new Signature program have anything to offer the chairman of the pork board? "Certainly, I'll take a look at everything."

Gerry Long, whose 3P group is also rumoured to be preparing incentives, says "there's nothing very special about the Maple Leaf program. There will be some people, I suppose, who will want to tie themselves up to feed and a single packer; I don't think that's the Ontario way."

Long's group purchased a London facility to launch a kill and chill plant. However, he says his group, which involves some of the province's top producers, will continue shipping to Thorn Apple Valley in Detroit. Long says feasibility studies are still underway at the London plant but 3P may now be better served with a plant in Michigan.

Long blames a lack of encouragement from cash-strapped municipal and provincial governments for the shift. "I have a letter from the governor of every nearby state wanting us to locate there."

Thorn Apple Valley, a major 3P shareholder, recently reported a US$21.7-million loss on revenues of US$983.1 million for its year ending May 31, Feedstuffs reports. "We've had no indication of problems at Thorn Apple Valley at our end," says Rick Scragg, director of sales and marketing at Ontario Pork.

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Breeders will cast second ballot

The Ontario Swine Breeders Association (OSBA) has finally caved in to the summer-long pressure over election irregularities, whipped up by Mount Brydges breeding stock supplier John Gough.

The association, which primarily represents purebred breeders, has agreed to re-stage their disputed elections. Industry officials say the conflict crippled OSBA and Ontario Swine Improvement (OSI), two key groups trying to bolster Ontario's faltering genetic prowess.

"We haven't been able to do any Swine Breeders business; it was strictly OSBA/OSI related business," says OSBA president Rein Minnema. He predicts his group will remain dormant until the new elections, which are scheduled for Nov. 12.

OSI General Manager Fred Hays admits there were concerns about whether OSBA Directors Warren Stein and Maxine Balazs could legally sit as breeder representatives at OSI, but insists "we are business as usual."

Ontario Pork chairman Carl Moore, whose group has contributed $200,000 annually to OSI, charges "OSI was essentially in a state of paralysis." Moore chaired an August meeting with OSI which aired the issue but failed to resolve it. "Genetic improvement programs are so essential to the industry that you can't wait an hour let alone months," Moore warns.

John Gough's almost singlehanded letter-writing campaign to media and key industry players caused all the fuss. He admits to some satisfaction with results so far but has one regret. "It's too bad that we couldn't have dealt with it inside our organization."

Gough finally hit pay dirt when Ontario Ministry of Agriculture Food and Rural Affairs (OMAFRA) reacted to his pressure by threatening to cut $1.2 million in OSI funding unless the rules were followed. OSI director John Forsyth, OMAFRA's director on the OSI board, welcomes the new election but vehemently denies any threats.

"The possibility of the withdrawal of OMAFRA funding from OSI has never been discussed with OSI," Forsyth insists. However, Minnema maintains "OMAFRA let the group know that things had to be followed according to the constitution and if not the government might take steps we wouldn't like."

Gough, who last year set up breeder group Swine Genetics Ontario along with four other breeders, says he had to take his complaint public because fellow breeders ignored him. He says when news of the rescheduled elections broke, a few producers called to thank him for carrying on but other than that, he hasn't heard much.

Part of Gough's complaint centred on OSBA's choices of Warren Stein and Maxine Balazs for the OSI board. He says both are in conflict of interest because Stein's Thames Bend Farms operates a private AI business and Balazs works for Thames Bend Farms. Balazs previously worked for OSI.

Warren Stein, whose Thames Bend Farms has been at the forefront of Canadian genetic development for decades, concedes an OSI investigation "found that, yes, the OSBA election did not follow the constitution to the letter." However, Stein points out that a majority of known breeders were there to vote and to make their wishes known.

Stein rejects Gough's conflict of interest allegations, explaining he and fellow OSI board member Arnold Ypma, another private stud owner, "are in a position where we can provide considerable advice." Stein sees a future role for OSI distributing semen from private studs like his.

"It may be a surprise to some, but the AI industry isn't all dog-eat-dog; it's really genetic distribution." According to Stein's vision, swine AI would follow the course charted by the dairy industry, where AI organizations like Western Breeders and United Breeders recently merged to form a more efficient Gencor, supplying semen from a variety of sources. "Amalgamation is the key, not fragmentation and this perceived conflict of interest," Stein says. He opposes a proposal to expand the OSI AI business currently being studied by OSI directors.

Carl Moore agrees. "I have problems with pork board or government dollars going to the production of semen. A year ago, the pork board decided to stop sending OSI an annual $200,000 cheque. That's been replaced by a $50,000 commitment to provide services and conditional funding up to $150,000 for specific projects approved beforehand by Ontario Pork.

AI is the only area of OSI which generates a profit, although exactly how much is debatable. General manager Hays contends details are "privileged" but claims the use of AI is increasing and OSI is turning away business because they have run out of space for boars. One solution for currently cramped OSI quarters is to sell the existing AI business. Another choice is to build a modern facility using a combination of OSI resources along with investment from industry partners.

Newly-elected OSI chair Clifford Howse insists "the OSI board hasn't ruled out any possibility." Howse, also co-vice-chairman of Ontario Pork, says it's too soon to tell how much damage the OSBA conflict has done to OSI. - RI

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