Chinese pork vendors
For the first time in more than six years, Clare Schlegel is starting to feel optimistic about his family farm.
Mr. Schlegel is a pig farmer near Kitchener, Ont., and for years he has watched friends, neighbours and relatives go out of business as pork prices plunged because of weak demand and an oversupply of hogs. He thought about giving up as well, but decided to hang in and even increased the size of his herd.
He's lucky he did. Hog prices have hit record levels recently thanks to soaring demand from China. Lean hog prices have traded above $1 (U.S.) per pound recently on the Chicago Board of Trade and jumped again Monday after China reported that domestic pork prices increased 65 per cent year-over-year in June.
Pork is a key food staple in China and the price of the meat has a huge bearing on the overall inflation rate, which hit a three-year high of 6.4 per cent in June.
"I'm pretty optimistic about the future," Mr. Schlegel said in an interview from his farm. "A lot of us who stayed in business, we tried to cut our costs. It's not going to be easy but we've become more efficient."
China has been grappling with rising pork prices for months. The country's burgeoning middle class is changing diets and increasing demand for meat in general. China already produces and consumes about half of the world's pork supply and the county has not been a major importer of pork. The biggest markets for Canadian hogs has been the United States, Japan and South Korea.
But the run up in pork prices has raised concerns within the Chinese government, which is now promising to boost supply. "Stabilizing pork markets is a responsibility that the government must not shirk," Chinese Premier Wen Jiabao said Monday during a tour of rural communities.
Those comments prompted analysts to speculate that China may boost imports to help bring down the price. "The market took that as an indication [China's]going to have to buy more corn to feed hogs, and they're probably going to have to import more pork into their markets," said Mike Zuzulo, president of Global Commodity Analytics & Consulting LLC in Lafayette, Ind. "If he's talking about it, they must need it pretty badly."
That's good news for Canadian hog farmers, who have endured years of low prices. Things have been so bad the number of hog farmers has fallen by about half in the past ten years to roughly 8,000. The federal government has even been paying farmers for the past two years to kill sows, in an effort to reduce the number of hogs. The $75-million program eliminated roughly 120,000 sows.
But now prices have reached a level where most farmers can start making money again.
"Our prices have certainly been better this summer," said Jurgen Preugschas, a hog farmer in Mayerthorpe, Alta., who is also president of the Canadian Pork Council. Mr. Preugschas said he hasn't made money on hogs for at least four years. The number of hog farmers in Alberta has fallen to around 400, from more than 1,000 six years ago.
The price of a pig at auction fell as low as roughly $100 (Canadian) in 2008 and is now up to $180. With costs at about $160, farmers can finally post a gain.
Mr. Preugschas said that while China doesn't import a huge amount of pork meat, it is a big importer of pig hearts, livers, stomachs and intestines. Prices for those products, which can total up to $15 per pig, have been tracking upward.
"That's critical to us as well," he said.
There are still concerns. The price of feed - corn, barley and feed wheat - has doubled in recent years and the strong Canadian dollar has made it harder for farmers to compete internationally. But for now at least, Mr. Preugschas and other hog farmers are enjoying some of the best times in years.
"We're at least showing a profit now," he said. "But it's still tough because it's four years of huge loses that we've got to make up for."
With files from Dow Jones Newswires
Paul Waldie