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Pork Commentary: Maple Leaf Foods Burlington Sold

by 5m Editor
16 November 2010, at 9:58am

CANADA - This week's North American Pork Commentary from Jim Long.

Last week Maple Leaf Foods of Canada announced the sale of their Burlington Ontario slaughter plant to Fearman Pork (used to be Pork brand and company in Ontario), an affiliate of Sun Capital Partners Inc for approximately $20 million.

Our Observations

  • Burlington has the capacity of 42,000 head per week. The other major players in Ontario are: Quality Meats approximately 35,000 head per week, and Conestoga Pork approximately 15,000 head per week. There are also smaller players and of course hogs are shipped to Quebec and the USA. The Burlington plant has recently been working at less than capacity. Hog numbers in Ontario are running at about 90,000 per week. There is plenty of slaughter capacity in Ontario.

  • With the sale of Burlington, Maple Leaf stays on their restructuring path. The Brandon, Manitoba plant (largest in Canada) is harvesting almost 90,000 per week. They also have a smaller export oriented plant in Alberta. The sale of Burlington puts Maple Leaf’s total slaughtering capacity in Western Canada. It was their announced plan to sell Burlington and they have executed their plan.

  • There had been concerns on the part of Ontario’s hog producers that if Maple Leaf did not find a buyer for Burlington it might be shut down. At that point Ontario would have been significantly short of slaughter capacity. Country of Origin Labeling in the US makes it difficult and price detrimental to send many hogs to the US.

  • The purchase of Burlington by Fearmans (Sun Capital) is a real positive for Ontario producers. No one would buy a slaughter plant without the intention of operating it for a profit. Sun Capital is a large organization with its affiliates combining for about $40 billion in sales. Companies that are food related in the Sun Capital Group include Can Agro, Creekstone Farms (Beef Processor), Hickory Farms (700 stores meat and food products), Marsh Supermarkets (grocery stores), Boston Markets, plus maybe 20 plus other companies in other industries.

Big Time Player

On the Sun Capital website their business description of Fearmans Pork the largest pork processing facility in Ontario serving primarily the Toronto area, Eastern United States, and select international markets. Fearmans Pork supplies product to other processors, retailers, and food service providers including chilled pork products, speciality, and counter ready products.

Summary

The purchase of the Burlington plant is good for all hog producers both in Canada and the USA. We have seen the last few weeks the wide spread between hog prices and pork cut – outs. Packers have been doing just fine in North America we could not afford to lose more packing capacity. Fearmans Pork is a new player and buyer for hogs. Having more buyers is always good for producers. Another plus, Sun Capital has chosen to be an investor in our industry. They must see a future.

Bullish Corn Report?

Last Tuesday the USDA came out with a so called bullish corn report. The morning after the report release, December corn went up to $6.05 a bushel. The close on Friday three days later was $5.34, a 69 cent a bushel decline. Goes to show that nobody knows what is happening. It is a crap shoot. My deceased friend Doug Maus used to call the Chicago Board of Trade ‘Las Vegas with no rules.’ Run them up, run them down. More trades, more money for the brokers.

Markets

We believe the seasonal low for early weans and feeder pigs has been reached. Last week cash for both USDA categories increased $1.00 per head. Cash early weans averaged $39.95, while 40 pound feeder pigs $49.12. The supply of small pigs is declining, the only way to ration them is higher prices.

A consortium of food retailers and processors last week brought legal action against the US Environmental Protection Agency (EPA) allegedly overstepping their legal right to mandate increases on ethanol use in fuel. Corn hitting $6.00 is motivating and helping food groups, AMI and oil companies to fight the lunacy of tariffs and subsidies for corn ethanols which are due to expire December 31. Expensive corn is not good politically for corn ethanol producers at this time. Now is the time to let your congressman and senator know what corn ethanol is doing for you?!

The USDA pork cut – outs at 76.68 while Iowa – Minnesota lean hogs closed at $63.65 last week. As hog numbers decrease from yearly highs, cut – outs will increase with lean hogs chasing them higher.

Summary

With hog supply declining we expect the demand scenario in the summer of 2011 will push some hogs to $1.00 lean. You just can’t keep cutting supply with a low US dollar not to have strong pork export demand to chase fewer and fewer hogs.

This week we are in Hannover Germany at Eurotier – possibly the world’s largest livestock industry exhibit. We can be found at the CSEA exhibit. Next week we will write our observations.