Overview

Canada is one of the world’s top three exporters of pork products – thus its importance as a major agricultural enterprise in this country. The industry itself comprises multiple players including the weaner pig producer. Historically, pork production was characterized by the medium-sized family farm with a 100-150 sow, farrow-to-finish operation. However the sector is now very specialized with distinct inter-connected components including dedicated breeding stock operations, gilt multipliers, weaner pig operations, and grower-finisher operations. Successful marketing strategies for weaner pigs tend to be contractual and long term. A good marketing strategy is critical to maximize a producer’s potential profit and to maintain the long-term viability of the operation.

Structure and size of the market

Hog production is a large and well developed industry sector and indeed one of the major commodities in Canadian agriculture. Hogs are produced in significant quantities in all provinces except Newfoundland-Labrador. (See Table 1, below)

Table 1: Distribution of Nursing or Weaner Pigs

Statistics Canada, 2001 Cat. No. 95FO-301-XIE; October 2006, Hog statistics, Cat. No. 23-010-XIE

Of note: About 75% of hogs are produced in Quebec, Ontario and Manitoba, with Manitoba having a significantly larger number of pigs per farm.

Market Characteristics

Hog production in Canada operates within the broader North America market. Prices are fundamentally driven by U.S. market conditions as the U.S. is the major consumer and importer of Canadian pork as well as live hogs. Thus, Canadian prices are set in relation to U.S. prices.

It should also be noted that hogs are very susceptible to epidemic diseases and biosecurity is a high concern. Thus disease status is very important to buyers of weaner pigs.

Producers of weaner pigs have several marketing options including:

• Participation in “short value chain” or “production loop” activity, contractual arrangements that usually involve weekly deliveries of a certain number of weaned pigs to one or a few customers. Customers may be local, or in the U.S.
• Direct sales to local grower-finishers.
• Direct sales through intermediaries for domestic customers.
• Direct sales through intermediaries for export.
• Retained ownership.
• Live auction.

These options are described in more detail as follows:

Participation in short value chain – this generally means being part of a dedicated ‘production loop’ or ‘system’ that has distinct structural and contractual relationships. For example, weaner pig producers deliver pigs to pre-selected grower finishers, and buy gilts and boars/semen from certain suppliers who have certain herd health status and genetics quality. Payments are made according to contractual arrangements which are based on U.S. cash and futures prices for hogs and feed grains. Grade premiums received for hogs reward all participants in the chain, the breeding stock producer, the weaner pig producer and the grower-finisher. Good stockmanship, cleanliness, biosecurity, housing, and other factors contribute to profitability and as such are rewarded according to the terms of the contract.

Sales to grower-finishers through intermediaries - smaller producers may find it advantageous to sell pigs using a third-party listing service. Customers for these pigs would be smaller grower-finishers, particularly those who operate in an all-in all-out basis and are able to thoroughly clean their facilities in between batches. These producers would not be as concerned about sourcing pigs from more than one location. Pricing usually follows a suggested formula.

Export sales - a significant number of weaner pigs are exported to the U.S. Canada has an advantage of high sow productivity, relatively low density and cold climate. As well, overall health status of the Canadian hog population is high. Feed grain prices tend to be slightly higher in Canada than in the U.S., providing the incentive to finish pigs south of the border. As a result, a significant export trade in weaner pigs has developed.

There has been a shift in the export trade toward early weaned (EW) pigs. There is no significant difference between supplying U.S. and local grower finishers. Sales may be direct or through intermediaries. Contacts with U.S. grower-finishers are often made by “networking”. Most local intermediaries can arrange sales to customers in the U.S. Supply is generally contractual in nature and prices set by formula. Exports require use of a customs broker, and all loads are inspected by a USDA veterinarian at border crossing points.

Retained ownership - retained ownership of hogs is an option for producers who want to spread their risk over a longer growing cycle. If feeding margins are expected to be positive, it may be advantageous to retain ownership up to market weight. This requires a close relationship with a grower-finishing operation that has a good reputation as a feeder and dealing with custom owners. Cost contracts are negotiated between the owner and the grower-finisher.

Live auction – this is the least common method of marketing weaner pigs, used for small numbers, i.e. barbeque pigs, where biosecurity is not an issue. Overall, for the serious commercial producer, the live auction for pigs is a ‘thing of the past’.

Key Changes and Recent Issues

Disease is a chronic and persistent concern and hence the increasing focus on biosecurity. Hog production in Canada is an export-oriented business, and markets require high health standards. As a result of the increased need for traceability in the industry, identification protocols are in place. Every producer has a registered shoulder tattoo number, and all pigs that leave the farm are required to bear that particular number.

Hog production tends to occur in “clusters” in certain areas, putting some pressure on soils and water. Not surprisingly, hog farming has raised public concerns with respect to environmental issues and the presence of intensive livestock operations.

Low and volatile prices are a perennial concern. Furthermore, the pace of technological change is rapid and rationalization of the industry continues at a steady pace. As a consequence, the hog industry is increasingly concentrated in the hands of fewer and fewer producers.

Price Discovery

The base price paid for hogs is established in the U.S. Everything works back from this price. If supplies are tight, buyers are more aggressive and the price of hogs increases; if supplies are heavy, the reverse effects occur. A major factor affecting the price of hogs is the price of feed which is the major input cost. Hog prices are also affected by local, domestic, and global market factors, which change frequently. Therefore, prices can and do vary considerably.

Most weaner pigs are sold under longer-term business arrangements, with predetermined formulas for setting price. These formulas are negotiated and often include complex provisions to protect the buyer and seller in the case of short-term price extremes in the cash-finished hog market. Most formulas include both short- and long-term price factors that are based on U.S. cash and futures prices, and anticipated feed price factors.

Key Quality Issues

Quality in the weaner pig market is mostly predetermined by the producers’ selection of the genetics of the breeding herd in the first place. Major traits considered include conformation, leanness, growth rates, feed efficiency and disease resistance.

Nevertheless, husbandry can make a difference in the health dimension of quality in two ways. First of all, producers can ensure that all health protocols having to do with sow health, piglet health are followed. Records must be accurate and complete. Pigs marketed must be healthy. Pigs that command the best prices are birthed and weaned in ideal conditions, disease free, and show optimum rates of gain and feed efficiency. Such a start has an ongoing effect; well-started weaned pigs are better quality and have a higher value. Higher quality may be reflected in adjustments to the payment formula.

Risk Factors

Risk factors impacting the production of weaner pigs include:

• Disease - there are a number of diseases that could decimate the pig population within a production area. As the risk of some diseases diminishes, new disease threats constantly appear. In general, Canada enjoys the advantages of relatively low hog densities and a cold climate that reduces the risk of disease. Nevertheless, disease outbreaks are a major risk factor. Interestingly, if a disease breaks out in a major hog producing country, this may increase the price of pork as global trade patterns are impacted.

• Market/Price - farm commodity prices have a certain degree of volatility, pork prices particularly so. Because of high fixed costs and high costs associated with disruptions to production schedules, pork producers do not usually attempt to regulate production or adjust in response to price swings. As a result the demand for weaner pigs is fairly constant, and prices less volatile. The strategy is to have a low cost, and ride out the inevitable periods of low prices. Local prices can also be affected by changes in local slaughter capacity.

• Feed grain prices – these have a direct impact on prices paid for weaner pigs. Pricing formulas have a feed cost component.

• Negative public perception – public perceptions regarding environmental concerns, animal husbandry and manure disposal problems may pose a threat to some operations or expansion within hog producing regions.

Other Factors

In the U.S. and to a lesser extent in Canada, processors have been directly involved in the production of pigs. While this is not in and of itself positive or negative for hog prices, it is a structural trend for entry-level producers of weaner pigs. Margins become narrower, prices more volatile, and the minimum efficient scale of hog production units continues to increase. Barriers to entry include environmental hurdles, large capital requirements and access to market, namely the ability to sell to a processor.

Successful marketing of weaner pigs, more than other agricultural commodities, depends on “intelligent design” of the production system. This requires a commitment to excellence in the areas of genetics, housing, feeding and disease prevention. These are the major factors which qualify weaner pig producers for participation in particular value chains or production loops.

Closing Comments

In summary, weaner production is a highly specialized enterprise within a concentrated industry. Any perspective weaner producer must begin with the market (the processor) and identify the production systems that are in place to supply that processor. This process is necessary to determine which ‘systems’ are in place and how the weaner producer fits into the system. In effect, the market opportunities must be evaluated in light of the system options and the contractual arrangements that define them.