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Saskatchewan Pork Producers Move Forward Following Closure of Mitchell's

by 5m Editor
16 June 2007, at 9:16am

CANADA - Saskatchewan's pork producers are expressing renewed optimism in the future of their industry following the closure of Mitchell's Gourmet Foods primary pork processing plant in Saskatoon.

Earlier this month (June 1) the final group of hogs passed through the cutting area of the 67 year old plant.

Producers have actually responded very well to the plant closing, states Joe Kleinsasser of Rosetown Colony, the chairman of the Saskatchewan Pork Development Board. He notes, “SPI Marketing Group has done a great job in presenting a menu of options for producers.”

For the most part pigs that had been going to Saskatoon are now being diverted to the Maple Leaf Foods processing plant in Brandon, Olymel’s plant in Red Deer or to plants in the United States.

Processing Plants in Manitoba Allow Maple Leaf to Honor Contracts

Jason Manness notes, the ramp down of the Mitchell’s plant actually occurred over about a two month period as hogs were transitioned from Saskatoon to Brandon.

“Many of the producers were offered long term opportunities and some of them, a good solid half of them, took those opportunities and signed contracts into Brandon.”

He says the numbers are working fine, “We had some extra capacity in some of the slaughter facilities in Manitoba. We custom kill at Springhill Farms in Neepawa and so we have an opportunity to ramp up some numbers there to facilitate some of these hogs. As well we have some opportunity in Brandon to maximize what it’s doing today, as well as our Marion Street Facility in Winnipeg so the majority of the extra pigs will be processed here in Manitoba because of the extra capacity we had here.”

Prairie Swine Centre Alters Research to Accommodate the Changes

Officials with the Prairie Swine Centre in Saskatoon faced the unique challenge of adjusting the facility’s research programs to accommodate the change.

“Historically there has been a close working relationship between the Prairie Swine Centre and Mitchell’s Gourmet Foods in terms of the slaughtering of research animals in their facility, collection of data and sometime collection of actual carcass samples in support of our research program. The Mitchell’s plant was always extremely cooperative with staff here at the centre to allow us to go into their plant and collect the data, collect the samples and so on. With that plant closed, we’re now in a position where we’re looking at alternative places to have our animals, number one, slaughtered just as a normal practice like any other pork producer, but also to collect the specialized data that we require as part of our research program.”

Prairie Swine Centre Shifts to Olymel in Red Deer

Dr. Patience says, although a number of projects were accelerated to ensure all samples were collected from the same plant, it has been business as usual.

“There are a number of things that we have put in place. Number one our pigs will be going to Red Deer to Olymel and they, again, have been very very cooperative in allowing us to collect data. Collecting samples in that plant, which is much larger, is going to be a little bit more difficult and where we need plants with slower line speed, we have arrangements with other abattoirs and will be making other arrangements with other abattoirs as the need arises. We will be using some local smaller abattoirs for some of that specialized research. In addition we have had an excellent working relationship with the Lacombe Research Centre and their excellent research abattoir. We have completed a number of studies at that facility and we're initiating some new research at that same place so we would foresee using their facility even more in the future than we have in the past.”

New Delivery Opportunities Open Up South of the Border

Kleinsasser notes a lot of people haven’t signed with Maple Leaf. Rosetown Colony felt the five-year contracts being offered by Maple Leaf were too long and declined, instead opting for a ten month contract to send hogs to California once its contract with Maple Leaf expires.

“The company we have signed a ten month contract with is Phoenix Agritech,” says Kleinsasser. “It’s a broker out of Manitoba, through SPI marketing group, that is doing the facilitating of hogs, where you don’t have full loads. They ship pigs into Hormell in Austin, Minnesota and our hogs will be going to California.”

“For us, who have always seemed to be tied at the umbilical cord with Mitchell’s, it’s a different kind of feeling to know that you really can go out and look for different markets and they are there.”

More Options Available than Anticipated

Kleinsasser recalls, “We used to think we only had Brandon, Olymel and then John Morrell, and that was about it. But, as it turns out, there are more places to go. Because of what’s happening in the states with Smithfield buying Premium Standard, hogs that would have gone to California are now going to Smithfield plants. That has opened the California market for us.”

He notes, “This has only happened in the last six months that Smithfield acquired Premium Standard and the California market opened up. We have only sent some test loads and they look really good. We’re very close to what we would have received at Maple Leaf and this is after freight for a ten month contract. We’re actually quite excited by it.”

Hog Prices Unaffected by Closure

Although the closure has increased shipping distances and, as a result transportation costs, it has not impacted hog prices.

Saskatchewan Pork Development Board policy analyst Mark Ferguson explains, “In general hog prices in Saskatchewan and across western Canada are based on formula prices that use the U.S. corn belt price and [are] adjusted based on regional factors and the exchange rate. In the short term, the closure of the Saskatoon plant won’t have an immediate impact on prices.”

However, he concedes, “In the long term, if our slaughter capacity in western Canada isn’t replaced there might be some adjustment of the formulas that could impact hog producers.”

Increased Shipping Costs Cause Concern

As for the increased transportation costs, Ferguson estimates that the extra transportation costs will be between four and ten dollars a hog depending on the producer’s location, if they use an assembly yard, how efficient their trucks are, and how they’re doing their transportation.

He says the increase in transportation costs is the primary and immediate effect of the Saskatoon plant closure.

Rising Canadian Dollar Viewed as the Biggest Obstacle to Profitability

The bigger challenge has been the soaring value of the Canadian dollar compared to its U.S. counterpart.

The Canadian dollar has increased significantly against the U.S. dollar since the beginning of April, observes Brad Marceniuk, a livestock economist with Saskatchewan Agriculture and Food.

“Over the last two months the Canadian dollar has increased by about eight cents, which is over a nine percent increase. We’ve seen some strong economic growth in Canada and increased inflation in Canada which has basically got the market thinking that the Bank of Canada will increase interest rates in July. CIBC World Markets has even predicted that the Canadian dollar could hit parity with the U.S. dollar by the end of 2007.”

Ferguson notes, “Hog prices are determined based on formulas that use the exchange rate as a factor in that formula so every time the value of the Canadian dollar increases, the price that Canadian hog farmers get for their hogs decreases by that same percentage.”

Marceniuk says, “The direct loss in Canadian dollars in revenues over the last two months is estimated to be about 12 to 14 dollars per 100 kilograms which is equivalent to about 11 to 13 dollars per slaughter weight hog.”

However, he notes, “Feed costs over the last month or two have been relatively flat. Increased corn acreage numbers this spring have tamed prices to some extent but, year over year, we’ve seen a large increase in feed prices in Canada and the U.S.”

Producers Optimistic

Despite the new challenges, Kleinsasser remains optimistic. He admits, “Unfortunately, for a number of the smaller producers, this could be the final nail in the coffin for some of them. I know of a number of units that are certainly saying they will not be producing pigs in the future.”

He acknowledges, “Things change and many of us don’t adapt too well to change but change is a given. It's part of life and this industry is going to be stronger for what we’ve gone through in the last year. I have absolutely no doubt about that.”

Challenges Viewed as Strengthening

“We certainly haven’t given up hopes that we’re going to have a packing plant here,” says Kleinsasser.

“I’m very excited about the future of this industry,” he adds. “I believe producers have gone from a sense of hopelessness last fall to a renewed sense of optimism. We have to move ahead with what we want to do and we will move ahead and this industry is going to be stronger for it. I have absolutely no doubt about that.”

5m Editor