Pork Commentary: Government Should Quit Sask Production

by 5m Editor
13 February 2008, at 10:30am

CANADA - Jim Long says North American prices will continue to fall and he also tables his thoughts on Saskatchewan's Big Sky situation and government's ownership of hog production in the province.

Market overview

US weekly hog slaughter continues to decline. A month ago the US marketed 2.450 million hogs a week; last week 2.210 million. A decline of 240,000 million hogs. The Iowa-Minnesota average price a month ago was 46.63, last Friday 55.32. In the last month hogs have gained about $18.00 per head of really necessary income.

As slaughter numbers continue to decline, we expect prices to keep ramping up. May lean hog futures closed Friday at 74.20. That would be almost another $40.00 per head in revenue. Probably just around breakeven, but still a lot better than gassing $50.00 per head.

Big Sky Change Sign of the Times

Big Sky is one of the largest hog producers in Canada with approximately 50,000 sows. Last week, Florian Possberg founder and CEO had his job moved. The following is an article published in the Star Phoenix:

Murray Lyons, The Star Phoenix

The board of directors of Big Sky Farms Inc. has created a new position for company founder Florian Possberg.

Earlier this week, the company announced Possberg would move from his job as president and CEO of the pork production company to take on the post of deputy chair, while continuing on the company's board of directors.

Big Sky's board says the change represents an expansion of the senior management team. A media release says Possberg is being asked to shift attention from day-to-day operations to pursue growth opportunities, whether that be regional, national or international.

Speaking by phone from Ontario, Big Sky board chair Larry Martin says the new position keeps Possberg on at an executive salary and plays to his strength in building business opportunities.

"He's really good at it and he's been wanting to do more of it," said Martin, an economist with the Ontario agribusiness think-tank known as the George Morris Centre. "Basically, there wasn't enough Florian to go around on both the external and internal stuff."

John LaClare, a veteran of the Saskatchewan livestock sector who had previously headed Big Sky's production team, is joining Big Sky on an interim basis as President and CEO. LaClare had recently been working as a consultant in the hog industry.

In the 1990's, LaClare was general manger of Heartland Livestock Services when the former Saskatchewan Wheat Pool subsidiary made a major but ultimately unsuccessful, foray into large-scale hog production.

Big Sky remains the province's largest producer with hog production facilities scattered throughout the province. The company's management offices are in Humboldt, near where Possberg founded the company from his family hog operation.

Larry Martin said the change is in no way a reflection on how Possberg has managed the company through the latest downward dip in the hog cycle. Rather, Martin praised Possberg's strategy of sending a large number of weanling pigs to the US Midwest for finishing, plus Big Sky's ongoing forward selling program.

"I'd rather be in Big Sky's shoes than any other hog producer in Western Canada."

Martin said Big Sky, unlike other large Canadian producers, is not getting rid of production sows and will be in a position to benefit when prices rebound. He notes futures for hog prices a year out are already $20 higher than the current US price.

The Saskatchewan government, through its Investment Saskatchewan Crown Corporation, is the major equity holder in Big Sky with 69 per cent of outstanding shares. In the most recent annual report of Investment Saskatchewan, the province's investment in Big Sky was valued at $29 million.

Our Observations

It is too bad that every independent producer in Canada and the USA has to compete with the Saskatchewan government in hog production. Why a government has to own shares in hog production is beyond our comprehension.

At one time, we believe it was Big Sky's mandate to add value to grain and jobs in Saskatchewan. Now, with a business model that sends pigs to the US to eat US feed and create US jobs, we wonder what the rationale is of government ownership in competition with producers and taxpayers.

The fact is losses per head for hogs have been near $50.00 in Canada. No one is immune. When Big Sky Chairman and Economist, Larry Martin says "I'd rather be in Big Sky's shoes than any other producer in Western Canada." We say, "Who wouldn't?" No other hog production entity has the coffers of government to sustain them.

It is our opinion that the Saskatchewan government should get out of hog production. It isn't fair to compete with taxpayers. If Mr. Martin is right with his belief that, "I'd rather be in Big Sky's shoes than any other hog producer in Western Canada," it should be no problem to find non-government shareholders. Obviously, we believe strongly that no government should own swine production. It's wrong and unfair.

Every independent producer in North America has a right to be outraged that this reality is being sustained. These are hard times. We all are losing money. To have 50,000 Saskatchewan government-owned sows contributing to overproduction and to our financial losses is more than disappointing. It is outrageous. Things need to change.

COOL – Country of Origin

Appears failure to get the US farm bill signed will delay the implementation of COOL to at least January 2009. By that time production of hogs will be in decline. You only have to look at Feb 2009 lean hog futures in the low 80's to see the expectation of a lot fewer hogs. Fewer hog numbers will have US packers becoming increasingly creative to figure out how to slaughter Canadian Hogs if and when COOL is ever implemented. Of note: the law was initiated in 2002.

5m Editor