in Canada driven by the PEDv situation in the US, a severely contracted cattle herd and the lowest corn basis (Ontario) in North America have created a “perfect storm” in reverse for Canadian (Ontario) pork producers according to Bob Fraser from Genesus Ontario.However pork producers probably more than any other sector in Canadian agriculture can be least accused of “irrational exuberance”.
Even with the gift of the USDA June 'Hog & Pigs Report' well outlined and summarized in Jim Long’s Commentary of margins for 2014 and a good chunk of 2015 (if not all of 2015) for the record books the industry remains cautious.
Having attended the World Pork Expo and the Ontario Pork Congress in the last 30 days you would be challenged to detect producers are making any money, let alone a lot of money. I believe this stems from their intuitive sense that the distance between being in the proverbial “right place at the right time” and being in the “wrong place at the wrong time” are separated by millimeters. That like the Looney Tune cartoons having the anvil fall on the other guys head rather than yours takes no shortage of skill and wit.
Therefore the reason for no expansion and highly unlikely to be until at least year-end. With the challenges of the last decade in this business the survivors - and that’s all we have left - very much understand prosperity can be extremely fleeting. So that scar along with the massive equity hole to be filled will delay expansion and preserve the profitable margins perhaps longer than normal (expected). However in the end, producers hate prosperity or more correctly hate paying income tax!
And come year-end for the first time in a long time, taxes are very likely to be an issue. The conventional wisdom on this prospect is get busy spending money i.e. expansion. They would do well to give this serious consideration because the hog cycle although perhaps altered is alive and well! Just like the cure for low prices is low prices, similarly high prices are high prices. Consideration of diversification or - horror of horror - paying some tax may be a warranted strategy in building the armour for this next round.
