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Pork Commentary: Big Sky Saga Continues

by 5m Editor
24 November 2009, at 10:20am

CANADA - This week's North American Pork Commentary from Jim Long.

Big Sky Farms, the world’s largest government owned hog farm revealed its financial dilemma in court filings last week. The bottom line: Big Sky owes $96 million with a net income before taxes a huge loss of about $40 million over the last 25 months. Since June 1st, Big Sky has been losing about $2 million a month (details can be found at by clicking here.

The court filings reveal that the Government of Saskatchewan has invested about $30 million in Big Sky (62 per cent of shares). Why a Government would find it necessary or desirable to fund a massive hog operation in competition with taxpaying independent producers are beyond us. Now the wizards that operate Big Sky have amassed $14.7 million in unsecured creditors. In all likelihood these poor creditors (mostly farmers selling grain) will be hung out to dry.

We can find no comments on the situation from economist Larry Martin the Chairman of the Board of Big Sky (Big Shy). We find this interesting since Economist Martin has been never shy over the years telling farmers how they should operate their industry. Missing in action maybe. It is always interesting when economists take their theory of business into the real world. It is no longer an academic exercise. The good news is the current Government of Saskatchewan has announced that they have no intention of sinking more money into Big Sky - $30 million is enough!

Big Sky Farms in their court filings revealed they have 41,994 sows plus the followers, one of the dilemmas they have in reorganization is that their fixed assets are valued at $94,605,000 or about $2,250 per sow. To believe there is a market value close to that in our current industry conditions could be challenging. We are aware that Banks have been offering in Canada good and large sow units that they have taken in control of for around $500 per sow, while offering terms on the debt. Big Sky is dropping currently give or take $500,000 per week. It will need imaginative accountants to get someone to fund further cash. At the end of the day Big Sky Farms should just go away. There should never be Government owned farms. It is morally wrong for Governments to compete with independent farmers. To think Big Sky could re-organize and use Canada’s Government Hog Farm loan guarantee program to save their bacon is bizarre. One Government’s mistake covered by other Government’s. Only viable enterprises can qualify for loan guarantees. What is viable - $40 million in losses?

Brazil

This past week we had some visitors from Brazil (Genesus associates). Like us in North America, Brazilian hog producers have had it tough losing about $25 per head for too long. Consequently, there has been sow liquidation in Brazil. How much liquidation cannot be confirmed as Brazil has no official inventory statistics. The good news for Brazilian and North American producers is that both areas are the two major low cost pork export powers in the world. Both have liquidated. Good bet there will be less pork from both to export in the near future. Both areas need higher prices, we expect in 2010 this will happen.

Other Observations

  • The latest weekly US sow marketing’s were 66,650. In our opinion liquidation territory. The sow price has recovered with 500 – 550 pound sows for $46.09 per pound last week. The higher sow price is helping cash flow and making it easier for producers to purchase gilts.

  • Cash early weans averaged on the USDA report $36.78 last week. Formulated prices averaged $36.23. The first time since February cash has surpassed formula. Strong cash early wean prices reflect true supply and demand. Stronger hog prices are coming.

  • H1N1 appears to have peaked. Thank goodness! The sooner hour upon hour of the media swine flu talk ends – the better. It would help domestic pork demand and enhance export access.

  • The USDA monthly pork in cold storage was positive. Total pork was 520 million pounds down from 528 last month and last year. Total hams in storage were down 25 million pounds from a year ago. We can thank Mexico for increased ham demand pulling ham supplies down.

  • Maybe we are looking for positive news too hard but last week’s US daily lean hog carcass weights were lower than the week before. We need hog weights to get in line with lower hog slaughter.

Summary

Some items, such as Big Sky make us sound cynical. Unfortunately, we have seen the pain of real producers who borrowed real money with personal guarantees be financially devastated by hog losses of the last 27 months. It makes us angry when we see the Government funding of Big Sky Farms.

Genesus Awards Woodland

First herd in North America 3 years over 30 pigs weaned


L-R: Terry Hofer, Michael Hofer, Jack Hofer (manager), Andy Gross and Jim Long, President of Genesus

Last week Genesus honoured several of its 66 customers who weaned over 25 pigs in the last calendar year. Genesus is fortunate to have such an excellent group of high achieving producers. It takes diligence and 365 days of intensity to achieve production in the top 8 per cent of all producers.

We congratulate all Genesus 25+ award winners.

Also receiving recognition was Woodland Colony the first herd in North America to reach 30 pigs per sow and now the first in North America to reach 30 pigs per sow for three consecutive years. This in turn has led to an astounding 28.5 hogs marketed per sow per year. Top Producer, Top Result. Genesus congratulates Woodland for these industry leading results.