With record prices and strong profits over the last year, are we on the verge of seeing renewed excitement about pig production in Canada? The previous decade was filled with challenges, but with pork prices where they’ve been over the last year, there should be some incentive to build new barns, or at least fill up empty barns, and expand the hog herd.
But not so fast, suggests Kevin Grier of the George Morris Centre in the above interview with Real Ag’s Shaun Haney, citing a list of obstacles — some regulatory, some financial, and some psychological — holding back widespread investment.
“Hog margins in the last 12 months have been very good, and you would expect, at least in the past, this would have created some expansion talk, if not outright growing of the herd,” he says.
However, one of the main reasons significant expansion has been delayed is that most producers who stayed in the business accumulated a large amount of debt.
“Even with this year of very, very good margins, many producers’ balance sheets are not back where they want them to be. There needs to be more repair of balance sheets and existing facilities before we’re going to see anything serious going on with regard to expansion in 2014 and probably 2015,” he says.
The Manitoba government’s moratorium on new barn construction, as well as the high cost of building relative to costs in places like Iowa, are other factors holding back new investment, notes Grier.
Many producers are also “gun-shy of the process,” and although lenders recognize the opportunity with strong prices, memories of hog loans going unpaid are still vivid.
“Bankers remember the damage that has been done over last six or seven years. They’re looking at things in a positive light, but they’re going to be looking at some tough security and debt-servicing markers that producers might not have seen in the past,” he says.
Yet there are signs that the expansion process is beginning, as barns that were emptied are starting to fill up again. Grier says the most noticeable growth so far has been happening in Saskatchewan. With some forecasts projecting pork production will remain profitable into 2015, could this be the start of another period of good times in the hog industry? We’ll see.