Canadian Hog Woes Not About Ethanol

hogcollage

I think everybody knows how hard hit the Canadian hog industry is.  With the American COLA labeling and the H1N1 flu scare, it has sent Canadian hogs on a price bender almost unrealized in the last decade.  Hog farmers are hardy folk, but nothing could have prepared them for the difficult economic times of the last year.  With H1N1 suppose to be worse this fall and winter, you can just hear the hype coming from our national media outlets.  “Swine flu is back with a vengence!”  That will surely be keeping an industry when its down.

There surely is a lot more to this.  I’m sure my hog farmers friends would say something about the value of the Canadian dollar and surely they would say something about the cost of feed.  Those two variables are some of the most important parts of Canadian hog market structure.  When the loonie feels it testosterone and corn gets too high, Canadian hog farmers adjust, or head for the hills.

I recently read the report “Opening the Throttle and Applying the Brakes:” The Disconnected Policy to Support (Stifle) the Canadian Pork Sector, a George Morris Centre piece of research by Al Mussell and Ted Bilyea.  It’s a good documentation of the current problems in the Canadian pork sector.  You can access the report by clicking on www.georgemorris.com.

For whatever reason, the reports authors come out pretty hard against Canadian ethanol production and its effects on the price of feed grains.  I have read this from one of these authors before, and it seems to be their emphasis might be a bit misplaced.  I would argue that Canadian ethanol production has had very little to do with increasing the price of corn in Ontario and almost nothing for feed grains in western Canada.

To be fair, read the report, but the following is a excerpt from the report which I disagree with.

The development and expansion of ethanol in Canada and its consequent increase in feed grain demand will have little, if any, influence of world feed grain prices; the volumes of

feed grains in Canada are simply too small to be material.  Rather, the effect is on the terms of trade for feed grains in Canada relative to the US.  So, where Canada has historically been surplus feed grains such that Canadian feed grain pricing is a US reference price less the freight cost, as ethanol demand in Canada increases and less domestic feed grain is available for feeding uses, Canada must import feed grains to satisfy its needs and pricing becomes US reference price plus the freight cost.  (“Opening the Throttle and Applying the Brakes:” The Disconnected Policy to Support (Stifle) the Canadian Pork Sector, George Morris Centre Al Mussell and Ted Bilyea )

Putting it more succinctly, ethanol is making feed to expensive and it would be better to go back to the old days before ethanol where feed was cheap, cheap, and consistently cheap.  At least that’s the way I took it.  I cannot see how it can be seen any other way.

The reference from the George Morris researchers concerning corn for ethanol in Ontario doesn’t make any sense to me.  Each fall in Ontario we have more corn that the trade can handle.  Basis drops and sometimes we have to ship at firesale prices into the United States.  As the corn is used up, basis improves.  During this time, there is lots of time to plan sales and buy cheap corn.  Although my hog producers friends always are concerned about price, more ethanol doesn’t mean grossly over priced corn.  Each year Ontario endusers import corn from the US, sometimes when there is lots of Ontario corn available, simply to keep price down.  As long as the border is open to corn, that isn’t going to change.

In western Canada its even more so.  Ethanol doesn’t effect feed prices to any extent, partly because Canada is such a huge exporters of western feed grains.

It all leads me to think some of this research is bias, because I’ve read about it before, this hog price versus ethanol induced corn price scenario from the George Morris Centre.  In my mind, it’s a real stretch to pin any of our Canadian hog industry woes on Canadian ethanol whatsoever.

So maybe we had better apply the brakes, wait a little while and then maybe open the throttle for the Canadian ethanol, corn and hog industries.  Co-existence is possible for these different agricultural sectors.  However, clearing away the biases and vested interests and finding balance at a time when one industry is really hurting can be really tough.  Our Canadian hog industry is on the brink, once again, but let me tell you.  It’s not about ethanol.  There is a lot more to this.