Hog producers lose money, request changes to risk management

Canadian Pork Council takes different approach to extract government funds

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What was looking like a profitable year for Ontario pork producers has turned into a wreck.

That’s prompted the Canadian Pork Council to come up with a hybrid proposal to fix income supports under AgriStability in a desperate bid to help the sector navigate the market chaos created by COVID-19.

While most of the industry’s attention has focused on adjusting the level at which payments are triggered to increase a producer’s eligibility for payments, pork producers are proposing to leave the trigger mechanism intact. Instead, they want the program to pay more compensation to the producers that become eligible under the existing criteria.

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Why it matters: Many pork producers are experiencing significant declines in revenue this year, yet the sector has had difficulty convincing the federal government to modify AgriStability because of the potential cost to taxpayers.

Reduced processing capacity caused when plants were forced to temporarily close has combined with lower North American prices to push the promise of profitability in 2020 beyond the reach of most producers. In fact, industry data suggests most producers are losing $20 for every hog they market.

Patrick O’Neill, business development manager with Ontario Pork, says Ontario pork farmers could lose up to $200 million this year due to COVID-19.

Most agriculture commodities have floated through the COVID-19 crisis without significant market impact, as those commodities have been more influenced by other global factors, such as supply and trade disruptions.

Corn prices were up in late August as a derecho weather event, combined with drought cut yields in many cornfields across the U.S. Midwest.

It was expected that hog prices would move into profitability in summer 2020, but instead of hitting $180 to $190 per 100 kilograms as expected, current prices are around $130 per 100 kilograms, which is well below what producers need to make ends meet, according to Ontario Pork.

The forecast for 2020 made on Jan. 31, 2020.
photo: Graphic: Patrick O’Neil

The forecast for the remainder of 2020 made on Aug. 18, 2020.
photo: Graphic: Patrick O’Neil

The formulas for AgriStability, which is cost-shared by federal and provincial governments, were modified in 2012 to make it harder for a producer to become eligible for payments.

Instead of experiencing a 15 per cent decline in their reference margins to qualify, they now need to see a 30 per cent decline.

As well, the payment formula, which was previously calculated on a tiered basis depending on the level of loss, was set at a flat 70 per cent.

The pork council proposal would leave the trigger mechanism at 70 per cent (based on a 30 per cent decline in their reference margin) but it would increase the level of compensation to 85 per cent.

“Doing so would retain AgriStability as a disaster program, respect Canada’s trade obligations, significantly reduce the cost to governments, but still provide additional support to those who are facing extreme loss,” said pork council chair Rick Bergmann in a letter to the federal and territorial ministers.

“Increasing the compensation rate to 85 per cent will make a significant difference erfor those producers who need it most,” he said. “It will increase payments by 20 per cent, but ensure those payments are only received by those facing substantial loss.”

John DeBruyn, Ontario producer and vice-chair of the board of directors of Ontario Pork says not being able to ship pigs affected many producers, and some were hit harder than others.

“Shipping your hogs is kind of the start of a process that for most farmers happens every week. You move your pigs out; you move everybody else along through the system. When that step can’t happen for you and you are not sure for how long (it is a challenge). It was a worry for those that weren’t (immediately) impacted, ‘you could be next,’ and I think that still hangs over us a bit,” says DeBruyn.

Ontario is currently up to date with hog shipping, but DeBruyn says that farmers are only one plant closure away from another round of delayed marketings. Plant closures in Quebec, especially, where Ontario pork producers send a good proportion of pigs, were significant.

The United States, which helps set the price for Ontario hogs, also was hit by plant closures, dropping the price for hogs across North America.

Producers are expecting a long-term market impact from COVID-19.

“We had the early on production issues, processing capacities mercifully come back online. So animals are flowing through the supply chain but we still have a lingering economic impact,” O’Neill said.

Decreased restaurant demand and a rise in unemployment have both had an impact. “Producers that are priced off the formula price for hogs at 100 per cent are losing significant amounts of money,” says DeBruyn.

Increasing the compensation offered under Agristability to 85 per cent from the current 70 per cent would significantly help producers overcome COVID-19.

“We think that would make the program more significantly responsive to the losses that farmers are facing,” says O’Neill.

“It would be easier for farmers to (deal) with a loss. Especially if they have a diversified operation where maybe hogs have been radically impacted by COVID, but maybe other farm businesses that have only been partially affected,” says O’Neill.

The average base price for pork producers in July of 2020 was $117 per 100 kilograms, a $60 per hog decrease from the price in July 2019 and a $63 decrease from the January future-based price forecast.

“The hurt is extreme in the pork industry. I think COVID has been a negative impact to all of agriculture. If the government wants to do (something) quickly they often like to do that using existing programs — AgriStability is an existing program based on individual farmer’s needs,” says O’Neill.

COVID-19 continues to create risk. Maple Leaf Foods’ plant in Brandon, Man., currently has COVID-19 cases and that has meant that it has had to suspend exports to China.

“Life has changed from everybody since COVID became a reality here in Canada. Uncertainty is probably the main word,” says DeBruyn.

About the author

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Jennifer Glenney

Jennifer lives on a farm in Cayuga, Ontario and has a lot of experience in the many aspects of agriculture.

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