Cover Story: Three Pork Producers, Three Strategies for Hard Times
Wednesday, April 2, 2008
by DON STONEMAN
1. The Hunsbergers of Breslau - Early Retirement under pressure from the dollar
Industry prognosticator, producer-processor-promoter, controversial columnist, and some might say visionary, Bob Hunsberger has been a pork producer for 38 years. But likely not much longer. He shipped the last of his 300 sows in mid-winter.
Hunsberger says that he and his wife Marg are lucky. "We have saleable real estate," he says, though he doesn't see that there is a big demand for hog farms. They live on 60 acres near Breslau with a small finishing barn. "I can still call myself a hog farmer if I feel like it," he says.
An exit strategy for his sow operation, which is near the village of Conestogo where he grew up, was put in motion several years ago but isn't complete yet. Hunsberger and neighbours have a long-term plan to acquire a gravel license. He has downsized his operation considerably since he turned 60 in 2003. Even so, he would have stayed in the pig business for a couple more years if not for the surprisingly strong Canadian dollar last year. Hunsberger thinks currency is the biggest issue that producers face, though perhaps the extent of the challenge it presents hasn't sunk in yet.
In February, Chicago hog futures for 2009 were over US 80 cents, a price that offered some profit in bygone days when the Canadian dollar was at 20 cents or more below par. But today farmers need to calculate in the Canadian dollar at par or close to it. At that level, the returns offered are well below the cost of production, and feed prices aren't backing off. "At $5 a bushel for corn, that's not fun," Hunsberger says in his understated manner.
Hunsberger believes some hog-farming business models in Ontario can compete in these tough times. As corn prices rise, it becomes more advantageous to be land-based, with manure reducing the costs of growing corn. Farmers who are good at growing their own feed and pig farming will make it in the next five years, he says. If necessary they will sell their corn crop instead of feeding it.
Moreover, large multi-site operators will find ways to reduce costs, Hunsberger predicts. One workable model is if an operator can ship a minimum of 1,000 hogs a week, "market them advantageously" and monitor costs at every stage. Those operators benefit from economies of scale and can keep tabs on feed conversions in multi-site situations, Hunsberger explains. Sussing out a finishing feed conversion of 2.6 vs 2.8 or a nursery feed conversion of 1.4 or 1.6 is difficult in farrow-to-finish, land-based systems. Another challenge facing nearly every producer, large and small, is the looming end of the Maple Leaf presence in Ontario. All indications are that the company will not be processing pigs by the end of this year.
It's a question of whether the Burlington plant is closed or sold, Hunsberger says. While the plant is "not a pile of junk" and could be used for a long time, he wonders where it fits into a pork-processing business model. "I have a lot of trouble picturing who the buyer will be," he says, noting that Maple Leaf opted out "for some pretty sound business reasons."
Then there's the hog cycle which is affecting even the Americans, who weren't feeling price pain last fall when the rest of the pork producing world did. Smithfield, the world's largest pork producer, "isn't cutting five per cent of its sows because it feels like it," Hunsberger says.
Young farmers are most vulnerable because they lack the equity to carry them through an extended period of unprofitability. Hunsberger predicts that some will have to change careers through no fault of their own. "People need to be doing some cold, hard, calculating," Hunsberger says.
For his part, he has no regrets about the farm where he grew up being eaten up to fuel growth of the nearby city of Waterloo. "My dad always said, 'it's only a piece of real estate. It's not who you are.'"
Those words might be of some comfort to other producers who can't stay in the industry at this time. BP
2. The Anwenders of Sebriingville - "We will re-enter the business when the numbers make sense"
Until late last year, pork board director Phil Anwender and his wife Eleanor ran a 500-sow, farrow-to-finish operation in the Sebringville area. But, in December, as the loonie's value rose and market hog prices crashed, they decided that a new strategy was in order. The first plan was to downsize, selling the farm with the nursery and finishing barn, and then finish pigs from 200 to 250 sows on their home farm.
In February, with corn prices trending upwards and futures markets for hogs showing no improvement, they decided at least temporarily to empty their home farm's sow barn as well. Phil's goal is to sell all pigs by Aug. 1 and take a holiday.
Anwender spoke to Better Pork within an hour of selling the nursery-finishing farm. The Anwenders expect to be back in the pork business later when business signals improve, but on their own terms. "When things don't add up, it's pretty simple," he says. His rule of thumb, which made him money in the pig business until recently, is that a pig should sell for more than the price of a tonne of corn. Lately, the numbers have been reversed with a pig selling for $110-$120 and corn costing $200 a tonne.
In 2005, the Anwenders made productivity gains, then lost them all - and more - to circovirus in 2006. In 2007, the run-up in the Canadian dollar caught Anwender and most other producers by surprise. "We will re-enter this business when the fundamentals make sense," he says.
His fundamentals include making $25-$30 per pig shipped. He expects to produce pork as a business, not as a lifestyle. "There are other things to do in this world than push a 270-pound pig around and pump manure for $5 a pig," he says.
Anwender's resolve to wind down operations wasn't swayed by federal announcements in late February offering better terms on government loans and a sow cull program. He wouldn't have been eligible for the cull program even if he wanted to stay out for three years.
Loans might help in the short term by providing some breathing room to make better decisions, but they don't address the underlying problem: a loss he predicts at between $35 and $40 per animal for producers in 2008.
As the old adage goes, hindsight offers 20-20 vision or better. When Anwender looks back at Ontario's hog industry in recent years, the signs of an industry headed for trouble were clear. Between 2000 and 2004, he notes, the average producer made $15-$20 per market hog. In 2005, PRRS (Porcine Reproductive and Respiratory Syndrome) struck, followed in the next year by circovirus. In 2007, the U.S. dollar plunged, taking Canadian pork prices with it, and early on in 2008 high feed costs became a concern, particularly for those who are not in a position to grow their own.
"Every one of those business signals said it (the industry) didn't deserve any more investment," he says.
Three signs in the fall should point towards a direction for the industry. The first is U.S. country-of-origin labelling legislation (COOL). This provision of the U.S. Farm Bill, passed in 2002, is scheduled to come into effect in September and will require country-of-origin labelling on all beef, lamb, veal, pork and many other agricultural products sold in U.S. retail stores.
Compliance with COOL will add costs to Canadian exports, Anwender says, and for a month at least he expects that sales to the United States will be disrupted. Developments in September should produce some clarity. However, there has been some discussion of postponing COOL's implementation until January 2009.
The possibility of the United States launching a trade action against Canada for government aid to hog producers is another issue Anwender is monitoring. Clare Schlegel, president of the Canadian Pork Council, has suggested that the measures introduced in February to help hog producers, which include no interest on the first $100,000 of a federal loan, aren't enough to trigger a U.S. action.
Anwender isn't so sure but figures an American response to the measures will be clearer by the fall. By then, it should become evident whether corn will be affordable as feed, he says.
Then there's the Maple Leaf question. While he is an Ontario Pork director for Perth County, Anwender says that he has no more information on this than anyone else. He confesses to being optimistic that the plant will remain open.
Come October, the Anwenders will re-evaluate and perhaps return as either finishers or farrow-to-finish operators. In that case, says Phil, "we have an opportunity to have a much higher health status than we have now."
Because of his pork sales in 2008, he is still eligible to be a pork board director when his term ends in a year, but he won't declare ownership of a few hogs at someone else's farm to be eligible. "If we are not in the business when I come up for re-election, I will not let my name stand."
Anwender still has 400-500 acres to crop and debt-per-acre ratios "are acceptable." After 25 years as a producer, he remains philosophical about the industry.
"A long time ago my dad said 'You can buy and a sell a pig any day of the week. Don't worry about it.'" BP
3. Vanden Heuvel of Goderich - Fewer sows and five-week weaning
Further west, near Goderich, Gilbert Vanden Heuvel, 46, is cheerful about the future and says he doesn't lie awake at night worrying about his operation. He downsized last summer from 2,000 sows to 1,400, ending production of weaners to the United States. Weaner sales weren't making money anyway and now he is feeding all of his own corn, which he estimates he can grow for $3 a bushel. Gilbert took over the operation from his father six years ago. His family's commitment to land-based hog farming, despite the urgings of the experts to give up growing crops and concentrate on the barn work, is paying off.
He's used the additional farrowing barn space to move to five-week weaning from four weeks and has tinkered with rations. Rather than take things out of feed while aiming for least-cost formulations, he has added some ingredients, such as extra fat, with gratifying results.
Days to market dropped. Feed conversion in the finishing barn improved to 2.6 pounds of feed per pound of gain from 2.9 on pigs grown from 30 kilograms to market weight. With his computerized liquid feeding system, he emphasizes that "we know this is a real number."
Vanden Heuvel says that it was hard to find information on five-week weaning, since it dated back to his grandfather's time. He calls the new plan "back to the future" and put that slogan on T-shirts, which he presented to his barn workers to remind them of the new change in strategy.
The local Huron County pork producers meeting in January was "a downer," but a meeting of liquid feeders in Stratford in February was more upbeat. Vanden Heuvel says that the speakers talked about "practical stuff" that could be implemented immediately, and "it's a younger demographic" of optimistic farmers who have converted to feeding with computers.
As for the future, "I believe high corn prices always make for high hogs," Vanden Heuvel says. Positive signs would be American integrator Smithfield Foods cutting its sow numbers even further, and China making some major pork purchases.
"I'm not even going to think about selling corn," he says. Corn would "pay the land mortgages but not the barn mortgages" and corn farming is "too boring anyway." BP