Credit crunch hits pork producers hardest

Tuesday, February 3, 2009

© Copyright AgMedia Inc

by BETTER FARMING STAFF

As if they didn’t already have enough to worry about.

Pork producers are encountering a cash squeeze at their bank despite recent federal efforts to help.

“Producers are having their lines of credit reduced as we speak and so that is putting even more pressure on them to try and find credit to put their crops in – especially pork producers,” says Phil Anwender, chair of Ontario Pork’s safety net committee.

Anwender spent the past two weeks meeting with bank and farm credit companies to assure them the industry will turn around.

Even though banks promise they look at every file case-by-case, “as an industry we’ve been downgraded,” the Ontario Pork director says. The problem: The industry faces huge hurdles, such as the impact of new country of origin legislation in the United States on pig exports and the unknown future of Maple Leaf’s Burlington hog processing plant.

Because the 2009 outlook for the province’s industry is grim, it’s a challenge for producers to present their banks with a business plan featuring a positive cash flow, Anwender says. Banks are responding by limiting credit. “From what producers have shared with me that is going on.”

Anwender says the recently extended repayment deadline for the federal Emergency Advance Payment Program needs to be extended even further so producers don’t “have to keep looking over their shoulder.”

Launched in March 2008 to ease the economic hardship on the country’s cattle and hog sectors, the program offers up to $100,000 in interest free loans and an additional $300,000 at one quarter per cent less prime rate. The loans are not commodity specific and may affect a producer’s eligibility for other program loans, such as advance payments for crops.

Anwender says some producers used the money to pay off their line of credit. Banks subsequently reduced credit limits.

Added into the equation are rate increases on bank premiums, but he says these aren’t as problematic.

“Access to credit is huge,” he explains. Producers “gladly pay one per cent more as long as they have assurances the bank won’t touch their line of credit.”

In some instances producers are seeing their line of credit reduced and pay more on interest. “That’s very unfortunate.”

Moreover, producers are getting squeezed by suppliers, he adds. Where feed companies might have once allowed payments to run  to 60 days, many now only allow a 30-day payment period and some require cash up front before delivery.

“As an industry … we have lost credit availability at a time when we can least afford it,” he says, predicting some producers may be forced to sell assets to cope.

However, Anwender says some producers, mostly those with enough land holdings to grow their own feed, have weathered the downturn and industry turmoil “very well.”

“The gap between the ‘haves’ and ‘have-nots’ in this industry is huge,” he says. BF