Investment capital scarce in hog industry

Improved prices might have some pork producers looking to upgrade or replace their long-neglected barns. But they’re unlikely to see bankers lining up to lend them the money. Rod Pfeifer of Farm Credit Canada provided a dose of financial reality on Friday during the Alberta Agricultural Economics Association’s Visions conference in Red Deer.

Improved prices might have some pork producers looking to upgrade or replace their long-neglected barns. But they’re unlikely to see bankers lining up to lend them the money.

Rod Pfeifer of Farm Credit Canada provided a dose of financial reality on Friday during the Alberta Agricultural Economics Association’s Visions conference in Red Deer.

“It’s hard to find investment capital in the hog business right now,” said Pfeifer, senior account manager, credit risk, with FCC.

He explained that after seven years of low prices, those inside the industry have little money left to spend. And those outside are reluctant to take a chance on the recent jump in prices.

Most bankers, said Pfeifer, will want to see a year or two of profits before they’ll finance the renovation or replacement of facilities that were virtually worthless a short time ago. FCC dealt with dozens of hog farm closures, he said, and the cleanup wasn’t pretty.

“We’d have $500,000 worth of land and $2 million worth of hog barns, and we got $500,000 for the quarter,” said Pfeifer, adding that some buyers even wanted a discount for having to take the hog barn.

“It was that bad at certain points.”

For those who remained in the industry, few could justify — or afford — capital expenditures on their facilities. So the need now is critical, said Pfeifer. Complicating things is a consumer-driven push for the elimination of “gestation crates” in favour of more open space for sows. Not only would this reduce production efficiency by about 20 per cent, said Pfeifer, it would necessitate a major overhaul of many barns.

“Most of the farrow operations in Western Canada are set up with crates.

“It’s not going to be deferred maintenance, it’s a change in the way the industry looks at animals and the way we raise them.”

On a positive note, pork producers’ improved earnings appear likely to remain for a while. That’s because current high beef prices are pushing consumers to meat alternatives, said Pfeifer.

“I’m optimistic the next two or three yeas, as long as cattle prices stay that high, people will default to a certain amount of eating more pork.”

A lower Canadian dollar has also helped, he said, although U.S. competitors remain a threat.

“The American industry only has to gear up about five per cent to take out the total Canadian production.”

Ruth Leman, an account manager with FCC, offered some advice to the “survivors” who remain in the industry. She urged them to know their costs of production, and to eliminate those that are unnecessary, review those that are borderline and manage those that are necessary.

Leman also suggested that payables be brought current, loans be paid down and money be set aside for the next downturn in the hog cycle.

Friday was the second and final day of the Visions conference. Held annually in Red Deer, it feature presentations on agricultural issues by industry experts.

The Alberta Agricultural Economics Association is run through the University of Alberta’s department of rural economy, with academics, producers and professional agrologists among its members.

hrichards@bprda.wpengine.com

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