Subsidies to shrink hog production in Canada take effect

 

 

Canadian farmers have agreed to cut their herds by almost 66,000 sows and nearly 396,000 total pigs over the next three years after claiming close to half of the government money available to shrink production.

 

The downsizing represents 4.9% of Canada's hog breeding stock and 3.3% of the overall herd of 11.85 million hogs.

 

That reduction reflects only those farmers whom the government has agreed to pay to downsize. Many others who could not sustain losses while waiting through the application process have voluntarily closed their barns, said Martin Rice, executive director of the Canadian Pork Council (CPC).

 

The Canadian government is offering C$75 million (US$70.8 million) to encourage farmers to cut production. The hog industry has struggled from years of low prices, a volatile Canadian dollar that is hurting exports and the US food-labelling law that has slashed Canadian hog shipments to their biggest market.

 

Farmers bid for the funds through a process administered by the CPC, with the lowest bids per animal accepted first. The second tender finished earlier this month, bringing the total government funding committed to C$35 million (US$32.7 million) for 190 farms.

 

More farmers are bailing out because a separate loans program, guaranteed by the federal government, appears to be worth less than first expected, Rice said. As a result, farmers should surpass the Pork Council's target of dropping to 1.3 million breeding hogs by 2014.

 

Interestingly, Rice said that a key goal of the industry downsizing is to support hog prices, but the strength of the Canadian dollar against the US currency has weighed against prices for Canadian farmers, since the hog industry relies heavily on the US.

 

He also acknowledges that downsizing the relatively small Canadian herd would not affect prices much as long as the US herd stays large.

 

The rapid herd downsizing has raised a concern for future supply from the pork processing industry, Rice said. Maple Leaf Foods and Olymel are Canada's biggest pork packers. He added that in the short term, there may be more pork on the market as farmers slaughter their surplus pigs, but not enough to further weigh against prices.

 

Lean hog futures LHc1 on the Chicago Mercantile Exchange, which influence prices in Canada, have risen sharply since July and were 7% higher than a year ago at US$66.85 per cwt around midday on Wednesday.

 

Farmers say despite some price improvement, they continue to lose money on each hog they produce.

 

Two more tenders are planned for early 2010 to award the remaining C$40 million (US$37.4 million) in downsizing funds.