Pork Commentary: As Goes Maple Leaf Foods as Goes Canada?

CANADA - This weeks North American Pork Commentary from Jim Long.
calendar icon 2 August 2006
clock icon 5 minute read

There were lots of hogs brought to market again last week with the US slaughter 1.906 million, down from the previous week which is 1.962 million: still 52,000 more than the same week a year ago. US Prices weakened during the past week with Iowa-Minnesota average lean price Friday being $64.16, which is down $3.00 since last Friday.

Lean hogs on the Chicago Mercantile Exchange closed Friday with all months for the next year in the profit for most, if not all producers.

Hogs Lean (Chicago Mercantile Exchange)
Close: Friday July 28
August: $ 68.65
October: $ 61.45
December: $ 59.47
February: $ 60.90
April: $ 61.70
May: $ 64.45
June: $ 67.17
July: $ 64.85
August: $ 62.10
With farrow to finish break evens in the .55¢ lean range (.42¢ - .43¢ pound live weight). It doesn’t take a rocket scientist to figure out there is at least a $10.00 per head profit in the equation for the next year. If you don’t believe it’s possible to have 28 plus months of profit plus another 12 upcoming profitable month’s maybe you should hedge. The truth is we are in uncharted waters; another 12 months is a record length of time of sustainable hog producer profits.

Canada

US producers might be having a record length of sustainable profits but Canada’s producers are facing many challenges. A microcosm of this reality is Maple Food’s, Canada’s largest meat company and hog producer.

Last week Maple Leaf Foods announced its quarterly financial results and its CEO Michael McCain made several comments about the state of Maple Leaf Foods and the Canadian industry. There is a saying “that’s as goes General Motors as goes America“ In the Canadian swine industry “as goes Maple Leaf as goes…“

Maple Leaf Foods CEO Michael McCain told shareholders to expect corporate restructuring as a result of a reported 36% decline in second quarter profit - $21.2 compared to $33.2 million a year ago. Maple Leaf sales last quarter were $1.5 billion.

Maple Leaf shares fell last Friday 8%, losing $1.04 to a two year low of $12.00 on the Toronto Stock Exchange; down from a 52 week high of $17.87.

Maple Leaf owned 32.6% by the Wallace McCain family and 33.5% by the Ontario Teachers Pension Plan said its operating income in its meat and agribusiness group fell 39% to $31.4 million.

Michael McCain in a conference call with analysts pointed out issues that not only are affecting Maple Leaf, but the rest of Canada’s pork and ag industry.

“The biggest single issue that we face is longer term currency shifts“ the impact of the stronger Canadian dollar is $100 million annually for Maple Leaf. The high dollar erodes export revenues.

Profits sagged at Maple Leaf in hog production and on pork sales to Japan. As CEO McCain said “a global oversupply in protein“. While hog prices contracted, costs rose for feed and energy. McCain reiterated “this is in fact a currency story much more than it is a commodity story“ Citing the 40% swing in the last three years in the value of the Canadian dollar against the US dollar and the yen; an issue that all Canadian hog producers are facing, one that is diminishing profitability and has put a lid on hog expansion in Canada.

When the CEO of Canada’s largest hog producer with over 100,000 sows says “we are considering new hog production models to reduce costs“ you know that all is not well. Indeed it is our opinion Maple Leaf hog production faces the same challenges as other Canadian producers. Cost structures established when there was a weaker Canadian dollar, tougher environmental regulations and costs, circovirus (PWMS) has indiscriminately hit many a Canadian producer, labor cost increases and the Canadian industries reliance on export markets with the need for Canada to export 50% of its pork production.

Hog Producers in Canada should hope Maple Leaf makes the right moves. Producers need a dominate and aggressive brand marketer like Maple Leaf in Canada and export markets. Most producers realize that killing a pig is the easy part, cutting it up and marketing the pieces at a profit is the hard part for Maple Leaf and indeed all packers. All producers in any country are best served by modern efficient aggressive packers well capitalized to purchase, pay and market their pork.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 3rd August 2006 - Reproduced courtesy Farms.com

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