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Pork Commentary: Fewer and Lighter Market Hogs

by 5m Editor
14 December 2006, at 10:21am

CANADA - This weeks North American Pork Commentary from Jim Long.

Hogs appear to be current. Last week’s US marketings were 2.107 million head, down 13,000 head from the same week a year ago, and the second consecutive week with year to year lower marketings. Slaughter weights of the prior week were slightly over one pound lower than the same week a year ago. Lower marketings, lighter hogs are a good sign as we approach the double whammy of plant closings of Christmas and New Year’s. Whether its higher feed prices or just prudent and timely marketings, whatever the reason, producers are delivering hogs with packers keen to buy.

The Iowa-Minnesota lean hog price last Friday was 61.71, a good jump from the previous Friday’s average of 59.05. Fewer and lighter hogs are a recipe for higher prices

Canada

We have wondered if the collateral damage in the continental packing industry due to excess packing capacity would be primarily felt in Canada, not the US. The facts seem to be bearing this out. Maple Leaf Foods is planning on closing slaughter plants in Saskatchewan, Manitoba and the Maritimes. This past week Olymel, one of Canada’s largest hog packers announced a plant closing, while a planned new plant in Winnipeg, Manitoba future seems to be really shaky.

Plant Closing

Olymel plans on closing the St. Simon, Quebec plant. There are 560 workers involved who earn $28 an hour including benefits. Olymel estimates its labour costs to surpass the North American average by 30 percent. Olymel has lost a combined $100 million in 2004 and 2005 and expects to lose $55 million in 2006. That would be $155 over three years. Simple arithmetic $1 million a week for three years.

Olymel, Canada’s largest pork and poultry processor with $2.5 billion in annual sales has warned that another 3,500 jobs are at risk. Obviously this scenario is not really good for Canadian hog producers. Sure, Olymel is using fear to negotiate with unions that have got their workers $28 an hour, but after losing $150 million plus over the last three years and not having stopped the bleeding, Olymel will be challenged to maintain creditability in sustaining retail food service and export customers. After a while continued losses become a direct reflection on all aspects of any business. How can producers have confidence in contracts with an entity that is losing so much money? Not a real confidence builder for the future.

Hog Days

Hog Days is held in Winnipeg, Manitoba - Winnipeg Convention Centre, Dec 13-14. The venue - which featured the latest information on health, genetics, feed and technology - helps to create a high quality product and spurred the growth of Manitoba's pork industry. You are more than welcome to visit us at our Genesus exhibitor #507-606

Olywest

Big surprise, months ago we speculated Olymel’s financial problems would prevent it from participating in the planned new slaughter plant in Winnipeg, Olywest with partners Big Sky and Hytek (pork producers). Last week, Olymel announced that it was not continuing with the planned Winnipeg slaughter facility. Wouldn’t you like to be in a meeting with the bankers on this one? Olymel, “We are losing one million dollars a week for three years. Obviously, we are having trouble selling pork at a profit. How about lending us money to invest in a $200 million dollar plant?“ Any wonder that they aren’t going ahead?

Big Sky and their CEO Florian Passberg have also pulled out (approximately 40,000+ sows) from the new plant consortium. Smart move, assisted suicide is against the law.

Then, there is Hytek (approximately 40,000+ sows). They, according to Guy Baudry, Hytek’s vice-president, said the hog plant’s business remains intact, but it remains unclear what portion of the $200 million tab, Hytek was going to fund. Baudry insists Hytek will proceed with new financing and possibly new partners.

Part of the attraction of Hytek attempting to keep the deal going is $31million in city and provincial economic incentives. Real coin to go after, and without these incentives, it would be next to impossible for a company the size of Hytek to take on a project of this magnitude.

It takes capital and coverage to take on billion dollar companies like Smithfield, Tyson, Swift, Hormel, Maple Leaf, etc. Hytek must believe they have a secret formula for success in a Canadian packing industry that all evidence shows that almost every participant is losing money.

Packers that we have talked to in Canada and the US about the Olywest project have expressed varied and less polite versions of “bring it on.“ More than one has wondered how Hytek can expect support for their breeding stock affiliate, Fast Genetics, when they seem to insist on going into competition with the same packers.

From a producer’s perspective, there can hardly ever be too much shackle space and maybe the new plant will get built. Just don’t bet the farm that it will ever happen.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 14th December 2006 - Reproduced courtesy Farms.com

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5m Editor