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Pork Commentry: Big Sky Update

16 October 2012, at 7:36am

CANADA - Big Sky Farms which produces one million pigs per year and is based in Humboldt, Saskatchewan entered receivership in early September, Big Sky is Canada’s second largest producer.

According to Kevin Brennan, Senior Vice President of Ernst and Young, the receiver for Big Sky “Both Toronto based Maple Leaf Foods and Quebec based Olymel are sizing up Big Sky. Also some packers outside Canada are interested“.

“There’s a great deal of interest in terms of buying Big Sky“ said Brennan, adding that “Big Sky is for sale as a whole not in pieces“.

Maple Leaf spokesman Dave Bauer said it’s premature to comment on any specific opportunities the company may have.

Our Observations

Big Sky is about $80 million in debt. They went through re – organization 3 years ago, paying unsecured creditors 10 cents on the dollar. We estimate with what the receiver is costing and hog market realty, Big Sky is currently going backward $1 million per week.

Big Sky claims feed price surge got them this time. They ever hear of hedging?

We suspect neither Maple Leaf nor Olymel really want to own Big Sky. Their main concern is getting hogs for their respective plants. If someone else buys Big Sky and hogs stay on market, it would in all likelihood appeal to both of them as a better scenario.

We suspect the receiver is hoping he can get a bidding war going. The biggest danger is someone ends up bidding against themselves. Unnamed outside packers? So mysterious!

Currently empty 2500 sow units in d Saskatchewan 10 years old with nurseries selling for $700,000. Sow units are not exactly a hot commodity, are still on the market.

Saskatchewan and Big Sky have tough location. Little culture of swine production in the province, and high labour rates, Big Sky Farms is spread over 100’s of miles increasing operating costs and logistic challenges. Saskatchewan is a large grain producing area with high grain prices, why would farmers want to bother with hogs? Work 6 weeks in the Spring, 6 weeks in the Fall, Arizona and curling in the Winter – a good life versus 24/7 of hogs.

Other Observations

U.S. – Canada sow herd liquidation continues with sow marketing’s over 65,000 a week. We had customers looking for an empty sow unit for a re – pop. We found lots of sow units available and more coming. We expect U.S.A. – Canada sow herd will be down 200 – 250,000 from June 1st to January 1st.

Small pig prices are improving cash early weans $26 now and they were $8. Interesting despite the $8 price unlike other big down markets there have been barns available to take pigs. Pigs have kept moving barn capacity has never got maxed. As the breeding herd liquidation cuts supply, barn space will be plentiful compared to supply – farmers hate empty barns.

We are optimistic U.S. market hog prices will keep improving. The European Union has double the pork production of North America. It is a significant exporter of pork. Currently E.U. hog prices are hovering around 90 cents U.S. live weight (1.49 Euro/kg live weight). The U.S. price is around 60 cents live weight per pound that is a $75.00 per head difference. The E.U. price reflects lesser E.U. pork supply but still strong demand in Domestic and Global Export markets. If you are an importer who are you going to buy from? E.U. at 90 cents or North America 60 cents $75 per head difference, simple arithmetic North America will have a greater export demand. We expect the pork export pull will lead U.S. – Canada hog prices higher.

Euro - tier is the largest livestock exhibition in the world and is held bi – annually in Hannover, Germany (Nov. 13 – 16). This year Genesus will be there at the Canadian Swine Export Association Exhibit. Since we went to Euro – tier two years ago Genesus has established Genetic Production facilities in Spain, Czech Republic, and Russia. We look forward to visiting many of our Global readers in Hannover.

Summary

Hog prices are recovering. Global hog prices of major importing countries are high. U.S. dollars live weight per pound: Mexico 78 cents, Russia $1.38, China $1.06. These high prices reflect the strong demand and lack of supply these countries have. U.S. – Canada pig production is shrinking daily with ongoing liquidation. We continue to see that the summer of 2013 will have the highest hog prices in history.