Better Pork - December 2005
BEHIND THE LINES
by ROBERT IRWINCorn is the feedstock for Ontario's pork industry, and the corn growing industry in Ontario is in trouble. This month's cover story looks at the effect that a countervailing duty placed against imported American corn might have on this province's pork industry.
Corn producers are looking to other parts of Ontario agriculture to give them support in their bid to institute a business risk management program which would be brought in as a supplement to the Canadian Agriculture Insurance Stabilization program (CAIS). Ontario Pork chairman Larry Skinner says grains and oilseeds producers are asking for a linkage to CAIS. The program would involve producers' premiums.
Ontario Pork knows that over half of the pigs produced in Ontario were fed farmgrown grains, Skinner says. "Hopefully it would be covered" under a new grain and oilseed stabilization program.
"It is very difficult for us to give unqualified support for grain and oilseeds (producers)" Skinner told Better Pork. I think we recognize totally the quandary they are in," Skinner says.
However, in the long term, Skinner says, it's not in the industry's interests to have corn producers here die off. "I don't want to be dependent upon corn from Michigan or Nebraska."
Whatever the quarrels may be behind closed doors, in public, solidarity between producers and grain and oilseeds groups rules. Late October, Skinner sat at a table in Queen's Park beside corn producers association president Doug Eadie, Peter Tuinema, chair of the wheat board and Greg Devries, chair of the soybean board.
Across the table from them was the rural caucus of the Ontario Liberal party. "The purpose was to show some solidarity among agriculture," Skinner says. The point was made that there needs to be modifications to safety nets and "additional dollars put into agriculture." "It's a hard sell but we are working on that together."
Skinner admits that it is a hard sell for rural Liberal MPS. They must convince their urban colleagues that putting money into agriculture is a good investment. The government has already made clear that its priorities are health care and education.
"We are in a battle for the hearts and minds of non-farming public, and it is personified in politicians," Skinner told Better Pork, from his car on the way home from the meeting.
High feed costs aren't the only challenge to producers here.
Another threat is disease, and Ontario Pork has been waiting for some time for the production insurance promised in the Agriculture Policy Framework, Ottawa's blueprint for support for farming.
There is a connection there as well, says Skinner.BP
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Pork producers search for strategies to cope with corn countervail
Many Ontario pork producers already feel they are under financial stress and a pending trade action with the United States that could add $8-$10 to the cost of raising a hog may further erode their competitivenessby DON STONEMAN
Sebringville area farrow-to-finish operator John Nyenhuis made a quick decision in October and began pouring a concrete pad, the foundation for a 550-tonne corn bin, which will add more than a third to the capacity of his previously built storage of 1,300 tonnes.The reason? The countervail action brought by the Ontario Corn Producers Association in late August threw shockwaves into the feed market. Nyenhuis feels he can no longer depend on purchasing reasonably priced feed supplies for his 450 sows and their offspring.
"I can't book in corn prices for next year," Nyenhuis says. "They tell me they will book a price, but (the price) is subject to the basis" so his costs really aren't secured.
His solution is to buy and store corn now and grow more corn in 2006 to meet his needs, even if it upsets his crop rotation schemes for his 800 acres of cropland. "I would prefer to rotate more," he says.
On the plus side, he says, "I have lots of manure to spread and keep the costs down." But he has to harvest corn early in the fall, perhaps when it is still wet, in order to make way for manure spreading.
In late August, corn producer associations in Ontario, Manitoba and Quebec launched a trade action against the United States, charging that its subsidies encouraged the export of low-priced corn into Canada, forcing down prices here to levels that growers complained were below the cost of production.
There have been lots of years when it was cheaper to buy corn than to grow it, says Nyenhuis. When that happens, he rents cropland to farmers who will grow beans or wheat.
It's a bonus that this year's crop was a bumper. "This is the best crop I've ever grown to date," says Nyenhuis, now in his 25th year of farming. It's hard to say if Nyenhuis' decision is typical of those being made by pork producers this fall. Certainly the industry has been put on notice. Corn countervail was the sole topic of discussion when the Ontario Pork Industry Council (OPIC) met in Stratford in mid-October.
"Hard economic data on the situation is difficult to generate because there are many unknowns and many factors which may affect the impact," said a newsletter published afterwards. "The commonly suggested value is that the duty may increase the cost of raising a hog by up to as much as $8-$10."
The newsletter suggested that to reduce costs producers might:
- Switch production to the United States;
- Finish hogs in the U.S.;
- Switch to corn alternatives (local feed grains/Western grains);
- Do nothing.
Nyenhuis figures that he can't just sit on his hands. His sense is that family-run farrow-to-finish operations, such as his own, are as competitive as any system in Ontario. "We are small, but we add up to a fair number of dollars," he says. "We are usually the last to go down. In the past five years, we've seen a lot of loop-style, large corporate farm structures have already run into problems."
He doesn't want to name names, but Acre-T Farms, Premium Pork and Clearwater Pork come to mind, among others. Nyenhuis believes "loops" failed because "their cost of production was too high." Now the pressure is coming down on farrow-to-finish operations, he believes. Feeding pigs in the United States is one possibility. But Nyenhuis says he won't do that.
He believes in being "hands on," and he can't see how managing pigs in a feeder barn located more than 12 hours drive away is going to work. "This is corn producers taking it out on fellow farmers that use up their corn," he says.
"It really bothers me that they are going at it that way. They are using countervail to get the government to do something. We have to be on the same level playing field as the United States or else we will die a steady, slow death."
Shocking conclusions
Canadian producers are already falling behind the United States, Nyenhuis says. Last January he and some other Perth pork producers visited farms in the American Midwest and compared notes with producers there. Their conclusions were shocking. "I was shocked at how cheap their input costs were," Nyenhuis says.Feed costs were $25-$30 a tonne cheaper, and so was soy meal. American producers were using drugs that have been banned here in Canada, such as Mecadox, which prevents ileitis and colitis in finishing hogs. And the injectable drugs and vaccines that are available in the United States appeared to be available for about half the cost of some used in Canada. Nyenhuis adds that his costs have gone up since Mecadox was banned. "We thought we were doing okay with $20-$25 a pig profit. They were making $50 US profit from what we could calculate. They were way ahead of us in making money when we were just getting by."
The reasons for an insecure basis are two-fold, says Ridgetown-based University of Guelph economist Ken McEwan. The basis for corn is the difference between the price on the Chicago Mercantile Exchange and the local price at any elevator in Ontario and it is made up of differences in supply and demand as well as transportation, the Canadian-U.S. dollar exchange and brokerage fees.
Brokerage fees are likely the only one of the three factors that is stable, McEwan says. Transportation costs increased considerably this year. Corn comes into Ontario by boat, train and truck, and all three were affected by fuel prices that went up by 25-30 per cent in the last year. The relationship between the Canadian and U.S. dollar has remained about the same in the past 12 months, but it is subject to change. In 2003, the Canadian dollar rose to 82 cents from about 62 cents in a few months and took a lot of money out of pork producers' pockets. They may not have noticed that the losses were ameliorated slightly by a reduction in the price of corn imported from the United States.
McEwan says the basis on corn is affected now because of the pending countervail duty, poor crop conditions in southern Manitoba, large corn crops in the mid-western United States and also by reports of toxins in that crop.
Producers in this province finish about 105,000 head every week, says Keith Robbins, Ontario Pork's communications director. And seven per cent of those go to the United States. From Jan. 1 to Oct. 15, live hog exports to the United States barrows gilts and sows were 2.09 million. Feeder pigs exported to that date were 2.4 million, according to Agriculture and Agri-Food Canada statistics reports that Robbins quoted.
Not everyone is in a tizzy over corn countervail. When asked if he thought countervail would change the industry's structure or farmers' way of doing business, premix seller Ken Palen of Centralia confessed he hadn't done the math. Many pork farmers don't believe that the countervail will come about, says Ben Dekker, who sells premix in southwestern Ontario for BSC Animal Nutrition, based in St. Marys.
Broken loops
Parkhill area farrow-to-finish operator Bert Beyens is one of those farmers who doesn't think countervail will affect prices more than it already has because of speculation when the process was launched in September. He thinks that the low corn price has less to do with American subsidies than it has to do with the lack of buyers in North America.Meanwhile, near Brussels, Markus Horst has seen what happens when a production loop runs into trouble. He was a contract finisher for Acre-T Farms, which collapsed two years ago. Now he feeds 2,700 hogs at a time on contract in a much smaller loop called Affinity Pork. Horst supplies a barn and labour. Purina feed is delivered to the barns. "We will have a lot more loops broke" if feed prices rise because of countervail, he predicts.
But countervail isn't the only challenge to the pork industry and he cites both PRRS and circovirus as costly threats. "Perth county; they changed the name to 'PRRS County,'" Horst says, exhibiting a flash of a producer's dark humour and citing anecdotes of producers who lost 10 per cent of the hogs in their finishing barns to disease.
Is putting up a high moisture corn silo a solution to feed prices? A silo would cost $100,000. "It's not easy to find $100,000 on the road," Horst observes.
Nor is filling the barn with his own pigs and buying cheap corn an option for the industry, he thinks. "That is not the solution....These guys (who work in the feed mills) have to make a living too."
Fergus-based Ontario agriculture ministry engineer Robert Chambers says the structure of the industry has already changed because the loop system collapsed. The big loops have been converted into many "mini-loops," he says.
The result is many different feeding and ownership arrangements as producers do what they have to do in order to stay in business. Some of these arrangements are highly creative in the ways they feed their livestock. Chambers cites a former Acre-T finishing barn operator who sought advice in the early fall on re-aligning his feeding system to accept high moisture corn. This hog finisher gets feed delivered daily to his feeder barn in a portable TMR mixer by his weaner supplier, who has a silo next door.
Many pork producers have been waiting to see if a corn countervail will take effect. Canada's biggest producer and packer, Maple Leaf Foods, has also been watching closely. Annalisa King, Maple Leaf's senior vice president of vertical co-ordination, says countervail is not the right way to solve trade issues for corn growers.
Should the provincial and federal governments be propping up Canadian farmers in similar fashion to the United States? "Long-term, the issue is getting the cost of production down to where it is in the United States in terms of scale, in terms of better yields, in terms of weather resistant grains, that kind of thing," King says.
Corn growers need to be adding to their revenue by growing specialty corns, innovative corns or feeding corn to livestock or selling it to ethanol plants. "We need to work our way innovatively out of the commodity game."
"The worst possible consequence" is that there won't be enough hogs here in Canada, King says. In that case processing "would have to be rationalized."
Cheaper grain substitutes
Finishing pigs in the United States is one possibility for Maple Leaf, she says. She didn't rule out transporting them back to Canada for slaughter. "The economics are going to play out as to which of the two things makes more sense," King says. "It doesn't bode well for the Canadian livestock industry, which we are in the process of trying to grow."Both Shur-Gain and Landmark produce feed using least-cost formulas. If corn prices rise too much, cheaper grains will be substituted, particularly in Western Canada, and that will drive down the demand for corn.
Would Maple Leaf transport grain to Ontario from the Prairies for pig feed? "We have to run the models. Maple Leaf will look at....whatever means is their least cost to produce feed and to get feed into their animals," King says, pointing out that Saskatchewan had a great year for growing wheat. Looking at the options presented at the OPIC meeting October, King says: "We will do what is best for our company and for lowest costing to our hog operations to survive, which may not necessarily be the best thing for the corn producers."
Increased weaner sales to the United States "wouldn't be good for us. Our long-term strategy is to continue to drive balance within Canada. We would have to re-evaluate that if the long-term cost structure changes," she says, noting that if the corn countervail comes into place it might remain for five years.
The worst consequence of a corn countervail would be not having enough hogs here to meet our needs, she says. "The economics are going to play out in terms of which of those two things makes sense," says King.
For his part, Stephen Benedict isn't overly excited about what corn countervail will do to pork farm incomes. The Stratford-based account manager for Farm Credit Canada (FCC) and the facilitator for the lender's nationwide pork consultation group, calls corn countervail "the latest shiver up everybody's spine," and compares it to country-of-origin labelling, anti-dumping and tariff issues. "It's just another speed bump on the road for hog farmers," he says.
American pork farmers are worried because ethanol plants are expected to take 7.5 billion bushels of corn off the market in the next three years. He points out that one of the U.S. Farm Bill's programs pays farmers not to grow corn and soybeans on more than eight million acres in the cornbelt. "Our hog portfolio is still very strong," he says. Arrears in the pork portfolio are "among the lowest they've ever been" since the FCC was created in 1959. In the 12 months up to Mar. 31, 2005, the FCC lent $205 million of "new money" to the pork industry in Canada.
Goderich farrow-to-finish operator Gilbert Vanden Heuvel is chairman of the Ontario Liquid Swine Feeders Association. Byproducts are typically a major part of liquid swine feeding rations, but corn has been so cheap that "byproducts have been over-priced," he says.
Most of the byproducts are corn-based, he observes, so their cost will increase as corn prices go up. "All sorts of funny things can happen and they all lead to higher feed prices," he says. If countervail kicks in "I guess you just bear down and hope it goes away. I'm not looking forward to another cost."
A stronger Canadian dollar and circovirus last summer took their toll on pig farmers. "I don't think many hog farmers put money away," he says.BP
© copyright 2005 AgMedia Inc..
back Beware of basing your decisions on anecdotal information
Information is power, the saying goes. But not if it is based on your own perceptions, incomplete and inadequately analyzed
by RICHARD SMELSKI
There is a general consensus that "information is power." Where does one derive such "powerful" information on the current challenges and opportunities facing the pork industry?One of the most common and powerful sources of information is "coffee-shop talk." Anecdotal information is probably the most common and likely basis for a decision. We often rely on what the neighbours say and then decide what to do.
Anecdotal information is a short account of some happening that is based on history or biography that is often used to form a general conclusion . Too often, we rely on anecdotal information from a neighbour, salesperson, veterinarian or from the media without full disclosure of the related information. We can use it to draw comparisons and conclusions relating to PRRS, land, prices, feed, environment, labor, neighboring events, and so on. The team you pick for your anecdotal information will probably be the outcome you will derive will likely determine the conclusion you reach.
Statistical significance is the principle used in the scientific community -- meaning that if a controlled event occurs 19 times out 20, then it is "significant" to the 95 per cent confidence level. But even this needs further interpretation. For example, it was a significant fact that, during the war, every time the navy disembarked in native villages the population increased nine months later. Too often, it is with this type of poorly assembled and analyzed data that perceptions and conclusions are drawn, when, in fact, further study is required. Upon further analysis, statistics showed that when the navy landed, the sailors spent money very lavishly in these villages, enabling the natives to afford larger families.
This example shows that it is easy to draw a wrong conclusion by basing it on one's perceptions and not having related information. Although statistical information is powerful, it, too -- like coffee shop, salesperson or press information --needs disclosure and careful analysis.
The literature is full of statistically significant experiments on current issues such as PRRS, price trends, flu outbreaks, labour management, building designs and business management. A pork producer in Brazil, the Ukraine or Kinkora, PEI has equal access to this information, because of the tremendous development in electronic transfer of information. What differentiates tem is whether they will read it and, more important, take the risk to implement the changes.
Because we are so dependent on the global market, it becomes even more essential that we stay current on the global information and take action on it. For example, exchange rates may be as costly to us as a disease outbreak (though not as visible).
So what can one do? First, think globally but act locally. We are very dependent on international trade (approximately 60 per cent of pigs produced in Canada are destined for the export market) so Perth County is no longer the hub of trade action; it is Geneva.
Secondly, know your benchmarks. You may compete with your neighbour very well, but can you compete with the producers in Brazil or Denmark? Their benchmarks are accessible -- are yours?
Third, envision the value chain that you have chosen. Your packer or chain store is not your enemy -- in fact, they are your best allies. How can you enhance your alliance partners' values?
Fourth, the power lies in the implementation of the information, not the ability to access it. Both not being able to read and not reading when you know how to read give you the same results. One needs to include your allies in the information exchange because you need to know how this information will impact your value chain.
Lastly, control the variations and you control the statistical significance. Don't worry about the average. Know your standard deviations and have a program in place to control these variations and your average performance will also improve. BP
Richard Smelski is general manager of Ontario Swine Improvement Inc. and a former Ontario government swine specialist.
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back Breaking down the barriers on Source Water Protection
The provincial government's plan suggests that the outcome will be a win-win for everybody. Where have farmers heard that before? As with the Nutrient Management Act, the devil may be in the details.by JAMIE BOLES
The suggestion that protecting all water sources is going to return us to the days when we could put a glass in the stream or lake and drink is simply not realistic. What is the definition of protection? What is the definition of sources?We now live in a world dominated by liabilities -- both legal and financial. We also live in a province where downloading, offloading and scapegoating is the norm. The sad fact is that we allowed politicians to take advantage of the media attention regarding drinking water for political gain. Water should not be a political football. Everybody wants safe, clean drinking water.
Let's look at these facts. The government wants to protect sources of municipal drinking water -- that is understood. The government wants all costs of implementing Source Water Protection to be shared. This is not yet understood. This is not a situation where you get what you pay for.
Municipalities, although not publicly saying so, do not want to pay for farmers to take land out of production if they fall in municipal wellhead protection zones. They want municipal money to be invested in better and bigger treatment plants, ostensibly so they can encourage growth and development. We, as farmers, have never been hooked up to municipal water and sewer services and have always paid for our own wells, pumps, testing and so on. That cost has never been shared with the rest of society.
But, still, the genesis of Source Water Protection is that all of society must share the costs to help municipal water users, so we will see how fair that is. We will do our part to help others in our society, something farmers have done for centuries. And, philosophically, since no one owns the water, who pays to protect what drinking water sources is a hot topic for debate.
The fact is that municipal drinking water has twice as many regulations and standards as bottled water, yet we still see people buying bottled water for $2 a litre. Imagine if gasoline was that price? When is this madness going to stop? Municipal drinking water is safe in this province, thanks in large part to dedicated environment ministry employees and highly trained municipal employees, but no one can guarantee that drinking water has zero risk. Even bottled water has an element risk.
How much risk and liability should each municipal government assume in the promise to deliver safe drinking water? How much of that legal and financial burden should municipalities be able to download onto private landowners, such as farmers, to achieve Source Water Protection? These realities might explain the somewhat slow movement of the provincial government's "Source-to-tap" water protection plan.
That plan suggests that the outcome will be a win-win for everybody. Where have we farmers heard that before? It is my opinion that Source Water Protection is eerily similar to the Nutrient Management Act (NMA) in that the devil will be in the details. The government decision about "Who pays" will ultimately determine whether this policy is more successful than the NMA.
A major difference for farmers is that we will be better prepared to find meaningful environmental solutions and stand up for what is right. So the question you likely have is "what does source water protection mean to me?" And while no one really knows the answer to that question, I think it will help to establish the foundation of a position moving forward.
Ontario's farmers have long held the position that we are good stewards of the land and, in most cases, that is true. But let's not kid ourselves. Farming is not a lily-white activity and it takes knowledge and commitment to protect the land that we own. Not everyone has what it takes to farm. Those that don't usually will not last long.
Nutrients need to be applied in agronomic rates. Pesticides need to be used in government-approved ways and quantities. Water needs to be taken with regard to adjacent landowners and the water ecosystem. These are not new concepts. And by and large, environmentally we manage our farms better than almost every other land user. The challenge we have is dealing with environmental academics that use jargon like "environmental persistence" and "hydraulic conductivity." If you want to say that a chemical sticks around in the soil, then say so. If you want to talk about flow rates in wet soils, then say so.
Farmers and non-farmers alike need to find a way to break down this language barrier.
Similarly, the outcome with Source Water Protection will be better if, over the next few years, we try to break down the barriers that stopped Nutrient Management from being accepted in the countryside. So, just because you would rather be farming than working in Toronto, or that you don't have your high school diploma, let alone a university degree, doesn't mean you are ignorant of environmental matters. Some of the dumbest things I have heard come from highly educated people who have no concept of the variables of the land.
Such things as the weather and the changing seasons, the soils and their condition can have a major impact on trying to implement government standards that were created in a climate-controlled lab, using out-dated models. You want an education about environmental stewardship on rural lands? Speak to someone who lives there, works there and raises their family there.
And this brings me to the final point about the government's impending Source Water Protection initiative. Determining which lands need to be protected better is the easy part. Finding acceptable ways to reduce risk and finding the money to pay for it is the hard part. BP
Jamie Boles is manager, public affairs, Ontario Cattlemen's Association, Ontario Pork, Ontario Sheep Marketing Agency, Ontario Veal Association.
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