Hog industry in crisis

THE skyrocketing value of the loonie has plunged Manitoba's hog industry into crisis, with farmers selling assets, workers laid off and at least one company liquidating part of its business.

Industry officials say the business -- worth more in total sales than Manitoba wheat -- has been devastated because hogs are getting too expensive to export to the United States.

"Our industry is based on exports and it's closely tied to the exchange rate," said Marcel Hacault, chairman of the Manitoba Pork Council.

"This exchange rate is just killing us," Hacault said.

Maple Leaf Meats in Brandon has renegotiated its supply contracts, cutting prices to producers.

Some producers are selling stock and getting out of the hog business.

"Every week there are producers who are throwing in the towel and there are bankers forcing producers into receivership," said Perry Mohr, CEO of the Manitoba Pork Marketing Co-op.

The crisis was triggered by the sudden leap in value of the Canadian dollar. The loonie jumped up by 20 per cent in relation to the American dollar in the last year.

The increase has knocked the industry to its knees after decades of expansion.

Manitoba's hog production grew sevenfold in the past 26 years to a total of seven million animals.

The province's consumers eat only eight per cent of its pork products, with the rest sent to the United States, Japan and other Canadian provinces.

In 2002, the Manitoba hog industry generated $850 million in revenue, down $90 million from the previous year. Producers exported $246 million worth of Manitoba pigs alone to the U.S. in 2002.

Manitoba is the largest pig-exporting province in Canada and the second-largest pork products exporter after Quebec, says Manitoba Agriculture.

"Hogs are by far the most valuable agricultural commodity," provincial agricultural analyst Janet Honey said. "Hogs has been at the top. Cattle is second, sometimes third or fourth compared to wheat and canola."

Maple Leaf Meats said it cut prices to producers in the past few weeks, forcing them pick up a portion of exchange-rate shortfalls.

"We were shouldering all the burden. Now we're sharing it," said Jason Manness, Maple Leaf's director of procurement.

Maple Leaf's Elite Swine, the meat packer's hog-producing arm with barns throughout southern Manitoba, laid off 30 people who work developing new barns. Puratone, one of the province's biggest hog producers, also laid off six workers.

"We're not going to fold up our tents," Puratone CEO Ab Freig said. "But everybody around the table, we all export to the U.S. and we're all talking about what we're going to do. What we're looking at is costs, costs, costs, costs. How are we going to get costs down? We have to get costs down."

Springhill Farms in Neepawa shut its packing plant this summer and reopened it in September at half capacity.

Packers can't afford to kill pigs at the prices they get with the exchange rate.

"They said they were losing too much money," the pork council's Hacault said. "In the summer, they quit killing their pigs and they all went to the United States."

The last straw for the Neepawa packer was a service charge tacked on to get the pigs to market.

"It cost $10 a hog to haul them down there," Hacault said.

Dynamic Pork Corp., a Killarney-based producer, is liquidating one-third of its company.

All 40,000 of Dynamic's feeder hogs are being sold in the U.S., with all revenue going to a bank. Feeder hogs, also called market or finished hogs, are pigs raised on feed until they weigh 250 pounds, generally around the age of six months. They're then shipped live to processors.

The rest of Dynamic comprises 100,000 weanling pigs, and that part of the company will keep going. Weanlings are baby pigs shipped off on the hoof after they've been weaned from mother sows.

"We may be the first large entity to go under, but we won't be the last," Dynamic director Perry Mohr predicted.

The Manitoba Pork Marketing Co-op, where Mohr is CEO, and Crocus Investment Fund own Dynamic.

The co-op, the province's largest hog-marketing group, represents half the industry's 1,600 producers.

Everyone is suffering from the exchange rate, which has knocked $25 to $30 off the selling price of each market hog.

The Canadian dollar closed yesterday at 76. 88 US.

Prices have dropped $10 a head on weanlings, which are shipped south faster than market hogs.

"I see the exchange go down every paycheque, but what can you do?" shrugged East Selkirk hog farmer Doug Martin. "As a producer, I'm paid in U.S. dollars."

Hacault said he is getting personal phone calls from small-scale producers whose banks refuse to keep them afloat any longer.

Bill Vaags of Dugald is selling his feeder pigs directly to the U.S. because the Manitoba farms that used to fatten them for market are shutting down.

"We may be in worse shape than the beef guys are," said Mohr, referring to cattle ranchers' crippling losses from the mad-cow crisis.

The co-op predicts the industry will shrink 10 per cent this year alone.

One hundred producers will go out of business in 2004, according to the marketing co-op's predictions.

Industry officials warn the crisis will have a long-term impact on the Manitoba hog industry.

"Over the next 10 years, the companies that survive will buy up the ones that won't for cents on the dollar," Mohr said.

The number of producers will go down, probably by between 800 to 1,000, but the number of hogs will stay the same, Mohr predicted.