Friday, March 29, 2024

Getting back to the basis

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By Steve Dziver

Editor’s note: Steve Dziver is an agricultural commodity market analyst who owns and operates Commodity Professionals Inc., based in Winnipeg. He can be contacted at steve@commodityedge.ca.

Forward contracting is a bit like fortune telling, minus the crystal ball. Basis calculation is the difference between lean hog futures and a specific cash price.

Have you ever opened an email on forward contracting or checked hog prices from a packer’s publication and wondered, where did those prices come from? Or have you noticed a change in lean hog futures that did not match what happened in forward prices reported by a packer on the same day?

If so, you could probably benefit from an exploration of the mechanics used in creating forward contract prices for market hogs. While analyzing the market value and direction is the goal of forecasting, to understand how this is done, we must examine how Canadian forward contract prices are made in the first place.

Cash versus futures: today versus tomorrow

In simple terms, Canadian forward contract prices are calculated using a similar method as weekly cash, except that instead of using a specific regional cash price to start from, like the U.S. Department of Agriculture’s (USDA) LM_HG201 report, every forward contract price, regardless of packer or contract, must begin from the former Chicago Mercantile Exchange’s (now CME Group) lean hog futures. The lean hog futures then must be adjusted to represent the specific cash price of the region or packer, with characteristics such as ‘like terms’ of the cash price being used by a packer and also the correct ‘timing.’ 

Weekly Cash Calculation = USDA cash hog report [multiplied by] Packer Factor [multiplied by] Exchange Rate [equals] the price in Canadian dollars (CAD) per kilogram (kg)

Forward Contract Calculation = (Lean hog futures + basis) [multiplied by] Packer Factor [multiplied by] Exchange Rate [equals] the price in CAD/kg

The necessary adjustment shown above is known as ‘basis’ and can be defined as the difference between lean hog futures and a specific cash price. From that point, there are endless basis calculations that can be made on a given day, let alone per week. If, for example, there are 50 different cash prices that can be derived from all the USDA hog and pork reports, then, by default, there will be 50 basis numbers reported for that day.

Basis achieves two major adjustments: 1) altering lean hog futures to be like a specific cash price and 2) changing the value of the lean hog futures relative to when it is being used during the allotted coverage period.

There are only eight lean hog futures to cover 52 weeks, meaning some lean hog contracts are used to cover as many as eight or nine weeks in the year. To better understand lean hog futures, producers who use forward contracting programs should understand that lean hog futures of any trading month are the market’s best guess of cash on one day – the day that contract expires.

Because lean hog futures have a cash settlement, an expiring lean hog contract must match the two-day settlement CME lean hog index (LM_HG201) on the day of expiry. What that means is, as futures trade up and down throughout the course of a year, the contract value is based on a prediction of how the market will behave at that point, based on the information and historical trends at present. 

For example, December 2021 lean hogs trade at a different value nearly every day and recently have been as high as U.S. dollars (USD) $89.55 per 100 pounds (cwt) on June 10 and as low as USD $74.12/cwt on June 24. Neither of those prices mean anything concrete, other than representing the market’s best guess of what cash is going to be on the day the December 2021 contract expires – somewhere around December 14. 

Every closing price and every daily change between the day a contract starts trading to the day it expires is just a bunch of guesses. Opportunities arise when the market moves a contract much higher than where it eventually expires, giving producers a chance to hedge something better than cash.

Conversely, when the market moves the lean hog futures guess lower than what it will expire at, producers may find their returns to be worse than the cash value, meaning there is opportunity for packers to take advantage of lower carcass or cutout values, depending on how their contracts are formulated.

If you would like more information, Alberta Pork’s website (albertapork.com) includes further explanation on weekly cash calculations, according to individual packers’ contracts.

Basis trends come from historical observations

As anyone following the market would expect, there are trends in basis heading into expiry. Although the trends in futures may not be known, basis often follows patterns during certain times of the year. The easiest week to predict lean hog basis is during the week of expiry, as the market knows it must merge to near zero, which means that basis tightens. However, during all weeks before that – which could be as many as eight or nine weeks in the case of February, April, October and December (which all cover two months) – price adjustments can be significant.  

Even if two cash prices use the same report but use different values from that report, the basis levels will be different. In the LM_HG217 report – which now summarizes multiple USDA cash regions, such as the LM_HG203 (National), the LM_HG206 (Iowa/Minnesota), the LM_HG212 (Western Cornbelt) and the LM_HG210 (Eastern Cornbelt) – each will potentially have a slightly different value, resulting in a slightly different basis when calculated against the CME futures. 

The LM_HG217 daily report provides a value for each independent market on a given day. In the following example, prices are for June 30, 2021. Since the second half of June and the first half of July rely on the July lean hog futures to provide price estimates, basis is calculated against the July lean hog futures using these cash values. The futures used for specific weeks will be explained further on. 

The close of July lean hog futures on June 30, 2021 (the same day the cash values were reported) was USD $107.47/cwt. The daily basis for each of these three cash markets are, by default:

  • $113.02 [subtracted by] $107.47 [equals] $5.55 for the LM_HG203 report
  • $114.14 [subtracted by] $107.47 [equals] $6.54 for the LM_HG206 report
  • $114.42 [subtracted by] $107.47 [equals] $6.95 for the LM_HG212 report
Figure 1

Figure 1 is an example of weekly basis (LM_HG201 report) for the period of June 15 to July 15, measured against the July lean hog futures for the last five years. As is quite noticeable, this year, basis has been extremely positive, meaning cash was considerably higher than the July futures but is narrowing (or coming down, closer to zero, towards contract expiry).

The basis numbers reported in Figure 1 are sometimes referred to as inverted basis, because they are positive, meaning the cash market is higher than futures during this time. An inverted basis can indicate a downward-trending cash market, as futures are anticipating lower cash values when expiry is scheduled to occur. The easiest way to explain inverted basis is by looking at production weeks in late August and early September.

Cash markets in late August are typically coming off the summer highs, and when compared to October lean hog futures, cash is typically higher. Since August lean hog futures have expired, and October is the next contract to use, inverted basis values are almost always reported. Inverted basis does not necessarily represent a better marketing opportunity for producers, but rather, that cash value is higher than the comparable futures for that week. Depending on the fixed basis that a packer has applied to a specific marketing week, forward contracting could still be a better option to maximize returns. 

If the basis calculation previously explained was completed five times once for each day of the week – you would then have a weekly basis number for that specific week in 2021 for each of those cash-reported regions. There would then be the same calculation for 2020 using cash and futures for that year and in 2019, 2018 and so on. Weekly basis can be calculated in history for decades, as far back as futures and cash have been reported. 

Basis is based on what?

Basis is the result of history. The market does not know what basis is, until it happens. Daily basis is known at the end of a trading day, and weekly basis is known at the end of a trading week. Since hogs are traditionally shipped weekly, and forward contract prices are offered weekly, most basis calculations are done weekly using a five-day average. As a result, there are 52 weekly basis values reported per cash price – one for every week of the year.

The weekly basis is then applied to a certain lean hog futures contract, making up the forward contracting price for that specific week. A different weekly basis would be applied to the next week but using the same lean hog futures to make up the forward contract price for the following week. That is why you do not commonly see forward contract prices the same for several weeks in a row; it is because packers have applied a different basis for each week. There are commonly reported weeks that have the same value, which means the packer has decided to use the same basis value over those two weeks.  Figure 2 illustrates the usual period covered by each lean hog futures contract and the number of weeks it can be used.

Figure 2

The dates in Figure 2 are only estimates and can change from year to year. The reason a lean hog futures contract only covers to approximately the 15th day of the month is because every lean hog futures contract expires on the 10th trading day of the month. For example, July lean hogs will expire on the 10th trading day of July 2021, excluding holidays, which usually means around the 15th of the month. Once a contract expires, it no longer trades, and the next contract must be used to estimate the cash price for the next contract. That is why all contracts cover the second half of the previous expiry month, until the first half of their own expiry month.  

Because basis is not known for the coming year, packers must now estimate what basis is going to be in the weeks ahead. Packer basis will usually use multi-year historical basis values – either three- or five-year averages – to predict where the basis could be in the year ahead, allowing them to then provide a fixed price, which producers can use to contract pig production.

Basis is usually calculated as cash minus futures, so when the futures are higher than the cash, the basis becomes a negative number. In Figure 1, June cash happened to be higher than July futures, so basis was positive.

Figure 3

Figure 3 illustrates the opposite of Figure 1. Historical basis for the February lean hog futures against the CME cash (LM_HG201) is commonly negative. The reason for the negative basis is that a higher market is usually anticipated in the middle of February compared to the lower cash weeks of late December and the beginning of each calendar year. Negative basis simply implies cash is usually lower during a specific period (in this case, one week) compared to the next futures month. February lean hog futures cover eight or nine weeks of production, which begins before the contract expires (in this case, December). Similar to the inverted basis shown in the July contract in Figure 1, basis in both cases narrows toward zero at or near expiry.

Fixed forward contracting equals calculated risk

Once research is completed by a packer on historical basis, it allows them to make the appropriate adjustment to the futures, to offer a price to the producer who wants to contract. Packers will traditionally use a multi-year average with some protection to be certain that the price they have offered is in line with the adjustment that is expected for the weeks prior to expiry.

Packers do not always get basis correct, and in many cases, they have offered a price that was too high, or in other cases, too low compared to cash during that week. Lean hog futures trade up and down, which provides coverage to both the producer and the packer. There is little risk to either participant when considering futures alone; however, when considering basis, there is risk. 

The basis risk lies entirely with the packer in the case of a fixed forward contracting price, because the packer is providing a price to the producer that will not change. A similar approach to setting basis and assuming basis risk applies to marketing agencies that provide fixed pricing forward contracts. For that reason, the risk of providing forward contracting is typically covered by taking a premium over basis to cover unforeseen results. 

Producers who are using fixed forward contracting for price protection should have confidence that the prices they are receiving are based on historical average basis applied to ever-changing lean hog futures with some additional protection basis, which allows the administrator of the program to run and offer such contracts.

Carbon tax harms hog farmers

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By Shawn Halter & Bijon Brown

Editor’s note: Shawn Halter is Manager, Industry Development & Analysis at Sask Pork. He can be contacted at shalter@saskpork.com. Bijon Brown is the Production Economist for Alberta Pork. He can be contacted at bijon.brown@albertapork.com.

Pigs raised in frigid climates require shelter. Without additional heat, animal welfare suffers. The image of this barn near Shackleton, Saskatchewan – about 275 kilometres southwest of Saskatoon – is worth a thousand words.

Flash back to early February: the annual polar vortex had just descended upon the prairies, shrouding much of the landscape in a blanket of extremely cold air approaching wind chills of minus-50 degrees Celsius in some cases. Just the thought of those temperatures is enough to chill any person – or animal – to the bone.

Western Canada’s millions of hogs are thankfully able to brace for those potentially lethal temperatures by using barns, heated with energy sources derived from fossil fuels. Few, if any, other practical options exist, as alternative heating systems and non-petroleum fuels are virtually unobtainable, highly cost-prohibitive or simply ineffective.

Despite this overwhelming reality, the carbon tax has hammered at pork producer profitability for several years now. Just how much? Data from the prairie provinces is being evaluated to weigh the burden on hog farmers, while other sectors have been spared much of the pain. As carbon pricing in Canada seems to have become a political inevitability of late, its existence has raised the cost of doing business, and hog barn operators – without readily available alternatives at their disposal – are left footing the bill.

The Government of Canada’s price on carbon, in principle, is designed to encourage consumers to consider the environmental degradation caused by their day-to-day carbon emissions, resulting from gasoline and diesel for transportation, natural gas and coal for power generation and heating, or even propane for firing up barbecues.

The carbon tax is intended to reduce consumption and spur investment into alternative forms of energy. But how can petroleum product use go by the wayside when these products remain vital for survival in our climate and necessary for figuratively and literally ’putting food on the table?’ At the moment, it is unfeasible.

Mapping the on-farm carbon landscape

Comparing the natural gas and electricity usage levels for four types of hog operations

Twenty pork producers in Alberta and seven in Saskatchewan were recently surveyed to estimate the impact of the carbon tax on their farms. The survey asked producers with metered barns to share the usage for electricity and heating, along with any propane usage and the distance traveled to market hogs, during the 2020 calendar year.

While there are other sources of carbon emissions that can be linked to hog production – such as feed mill operations or off-farm feed purchases that require pick-up or delivery – and since hog market destinations differ from one farm to the next, only the fuel cost to transport hogs to market is captured in that part of the overall estimation.

In Alberta, usage varied greatly depending on the farm type. For example, farrow-to-finish operations used substantially more heating fuel than grow-to-finish, farrow-to-wean and nursery operations. On the other hand, farrow-to-wean operations used considerably more electricity than the other previously noted types.

Breaking down carbon tax costs for hog farmers

Carbon tax coefficients by product and cost per hog marketed over the coming decade

When comparing Alberta and Saskatchewan, separate coefficients are used for electricity, as the provinces’ electricity markets are different. Provincially owned SaskPower sources electricity from independent producers and then retails it to end-users, while the electricity market in Alberta consists of privately owned wholesale buyers (energy suppliers like ATCO, Enmax or Fortis) and producers of electricity interacting by bidding on the price and quantity of electricity each hour of the day. Where supply meets demand, the market clears, and the wholesale price of electricity is realized. Retailers then sell electricity to end-users, including farmers. This disparity between the provinces makes it difficult to track the carbon composition of electricity at any point in time, as successful sales to the grid may consist of electricity from fully renewable sources, fully fossil-fuel-generated sources or a blend of the two.

It is indicated from the estimates that the carbon tax on electricity in 2020 ranged between $0.19 and $0.48 per marketed hog. For natural gas, the carbon tax was between $0.38 and $0.47 per marketed hog. The carbon tax on propane was around $0.10, while the carbon tax on diesel for transport vehicles was between $0.04 and $0.12 per marketed hog.

Overall, the carbon tax for the survey respondents, on average, was between $0.79 and $1 last year. Based on data from Commodity Professionals Inc., it is estimated that producers in western Canada lost about $12 per hog in 2020, not including the carbon tax. Factoring in the carbon tax, that added expense served to drive another nail into the coffin of some operations, making them financial unviable, and even forcing some producers of varying size to go out of business.

In the coming decade, the price on carbon is expected to jump to $170 per tonne of CO2 equivalent. If consumption patterns remain the same, then the carbon cost would jump to between $4.50 and $5.62 per marketed hog. Placed in context of the most recent cost of production study conducted by Alberta Pork for the 2019 calendar year, heating, electricity and transportation costs amounted to $7.63 per marketed hog; this represented only five per cent of operating costs. Nevertheless, producers who volunteered their information for the cost of production study experienced an average loss of $5.30 per marketed hog.

In 2030, if everything else is held constant and carbon taxes amount to $5.62 per marketed hog, then losses would balloon to almost $11 per marketed hog. That may be a tough pill to swallow for some producers, especially when, over the past five years, they have experienced double-digit losses on most hogs marketed, only now beginning to recover as prices experience a summertime boost.

Clearly, a carbon tax is not in the interest of hog farmers, nor is the impact on the hog sector proportional to other agricultural commodities, which may have fared better over the same period and into the future.

Not all commodities are treated the same

Greenhouse operators in Canada are eligible for carbon tax exemptions, which has helped them remain competitive with international fruit and vegetable growers whose products also end up in Canadian grocery stores.

Canadian consumers value choice. Even in the dead of winter, product offerings at the retail level remain consistent, even if somewhat seasonal. This includes items like fresh produce, dry goods and meats that are imported from parts of the world with fairer climates or other production advantages.

Some carbon-intensive agricultural sectors in Canada are eligible to recuperate carbon tax expenses, but livestock producers have not yet been afforded the same luxury. In the Government of Canada’s 2021 budget, $100 million was set aside for producers to help offset rising costs due to the carbon tax. However, the details on which types of farms and activities qualify are still to be determined and can be expected this fall, according to the government.

On many farms, the current carbon tax increased costs and decreased farmers’ ability to be more productive and proactive by bringing more jobs to rural communities. On top of the current pain, this tax is set to increase five-fold over the next decade, exacerbating the problem.  

When it comes to imported goods, such products are not subject to the same standard of taxation, despite the comparatively large carbon footprint associated with international trade. And because no carbon tax is levied against these imported products, Canadian farmers are invariably harmed in the process, while foreign exporters are not. Easily overlooked by the consumer, not so easily overcome by the domestic producer.

And, still, a much bigger question remains: how does any part of this situation promote lower carbon emissions? Essentially, for livestock producers, it does not.

While taxation appears to be a punitive measure against producers, some incentives do exist on the provincial level to encourage reduced fossil fuel consumption, such as carbon credits and other funding for projects that seek to reduce carbon intensity. Federally, a recent proposal to offer a credit-based program is also taking shape, but some farm groups, such as the Ontario Federation of Agriculture (OFA), worry that criteria for such a program may not recognize much of the progress that has already been made.

“Farmers have been doing a lot of good environmental work for a number of years. This didn’t just happen overnight,” said Drew Spoelstra, Vice President, OFA. “We’ve been doing things like following no-tilling and best management practices for a generation almost.”

Any solutions that may be forthcoming are desperately needed – and needed promptly – for the sustainability of many farm businesses and to defend food security for Canadians.

Political support could be on the horizon

In February 2020, Phillip Lawrence, Member of Parliament for Northumberland-Peterborough South (Ontario), introduced Bill C-206 in the House of Commons, an amendment to the Greenhouse Gas Pollution Pricing Act, which would extend the existing carbon tax exemption on farm gasoline and diesel to include natural gas and propane. The bill passed third reading and adoption in June 2021.

“Our farmers are struggling out there. They are now facing multiple blockades in addition to pricing instability and trade disruptions. The pressures on our farmers today are innumerable,” said Lawrence. “One of the things I heard when I was travelling my riding, from farmers and non-farmers, is that the carbon tax is impacting the way they operate their businesses. In fact, the carbon tax is taking away up to 12 per cent of their net income, so this is having a significant impact.”

Canada’s provincial and national pork producer organizations have previously called upon the Government of Canada to create a carbon tax exemption. Shortly following the introduction of Bill C-206, Rick Bergmann, Chair, Canadian Pork Council (CPC) sent a letter to Marie-Claude Bibeau, Minister, Agriculture and Agri-Food Canada (AAFC) urging her government’s support for such an exemption, citing economic impact studies generated by Manitoba Pork in 2019.

“To efficiently produce pork and manage the welfare of their animals, pork producers use natural gas or propane to heat their barns. There are no other practical alternatives,” the letter reads. “It is projected that, by 2022, fuel costs will increase by 150 per cent and cost pork producers $10 million per year. The carbon tax costs faced by producers cannot be recouped from the marketplace, as we face daily competition from American pork imports.”

In addition to alleviating the pain caused by the carbon tax, governments at all levels must consider their role in establishing the relevant legal framework to facilitate the development and expansion of infrastructure for the adoption of low- or no-carbon technologies. Such investment should also prioritize research and development of alternative energy, providing a clear pathway for making a smooth transition. Canada is a leader in innovation, but our privileged position depends on governments to play a large supporting role by attracting private investment, paving the way for economic growth.

Canadian power supply composition is changing, albeit slowly

Comparing power supply composition in Alberta, Saskatchewan and Ontario

If Canadians are permanently saddled with a price on carbon – which appears increasingly likely as time goes on – what kinds of solutions are available? Most directly and obviously, innovation in the area of power supply composition.

Canadian provinces have largely built their energy infrastructure around the natural resources available. This means that, with Niagara Falls in Ontario, hydroelectricity factors greatly in energy consumption, while in the prairie provinces, which are endowed with fossil fuels, carbon-emitting energy is featured disproportionately more.

There have been considerable strides to shift the carbon composition of electricity generation. In Saskatchewan, the composition of the electricity grid declined from 84 per cent coal and natural gas in 2018 to 72 per cent in 2020. In Alberta, the carbon-intensive share declined from 92 per cent in 2018 to 81 per cent in 2020.

There has been little change in the heating and transportation fuels over the same period. This may be partly due to infrastructural and regulatory policies that fail to facilitate meaningful change. Many farms have already made the transition from coal boilers for heating to natural gas and blended fuels with ethanol or biodiesel under policies that preceded carbon pricing.

One of the potentially viable alternatives that is becoming more and more popular is hydrogen. Hydrogen can be used for electricity, heating and as a transportation fuel. It can be produced using natural gas or renewable electricity. The major constraint to making considerable change is the lack of infrastructure support. In April 2021, the Edmonton region was identified as Canada’s first hydrogen hub. This new approach is expected to help to bring down the price of hydrogen by developing infrastructure to expand the use of hydrogen as fuel. While this recent shift away from fossil fuel over-reliance should be praised, it seems as if the cart was put before the horse. For any alternative to be fully useful, infrastructure must be widely developed and implemented prior to the use of carbon pricing as an incentive to transition to the cleaner alternative. Currently, pipeline and service station infrastructure are some of the greatest challenges to seeing hydrogen adopted in the mainstream.

Significant investment will no doubt be required to either bypass or replace existing natural gas infrastructure. In the U.K., as an example, the cost for getting all homes hydrogen-ready is estimated to be around £140 billion (or CAD $240 billion). Clearly, if the cost is so much to cover a land mass the size of the U.K., it may be significantly more for Canada. Such an investment would require both public and private partnerships, as well as clear transition targets. For instance, the U.K. is working towards having all boilers sold for home heating to be hydrogen-ready. Many home boilers currently operate on natural gas, but with changes to a few parts, by 2025, units can run entirely on hydrogen while costing no more than £100 (or CAD $170) to upgrade. Such a model sets a precedent for how to possibly handle a workable transition from natural gas to hydrogen.

In addition to power generation, the transportation industry must also be cast into the spotlight as the largest contributor, proportionally, to total carbon emissions. Within this industry, heavy-duty freight is the second-largest carbon emitting sector in the world, yet carbon-free alternatives are not scheduled to come online until after 2024. Furthermore, the cost of such trucks is predicted to be around USD $250,000 (or CAD $300,000), which would certainly be outside the range of affordability for most hog farmers in Canada.

Placing a price on carbon without providing clear leadership or opportunities to make the transition to alternatives effectively places a tax on productivity and creates a competitive disadvantage for Canadian hog farmers. Foreign suppliers in the pork sector and elsewhere in agri-food have recognized our impediment and exploited it, as a result.

The European Union (E.U.) will, by the end of 2021, institute a carbon border adjustment mechanism to address loss of competitiveness due to carbon pricing. The mechanism will adjust the price of all E.U. imports for the carbon emitted in its production process, thereby leveling the domestic playing field. Canada has yet to propose something similar, but such a mechanism is essential to have in place before carbon pricing. Unlike the E.U., the Government of Canada’s decision not to be prudent in this area will negatively impact Canadian production in our own domestic market.

However, Canada is a net exporter of many commodities, including hogs and pork. This means that, while something like a carbon border adjustment mechanism would strike a better balance between foreign and domestic products in Canada, it will do little to improve our standing in the international marketplace. That is bad news for pork producers. What is needed is a review of agreements like the Canada-United States-Mexico Agreement (CUSMA), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Comprehensive Economic and Trade Agreement (CETA) to ensure that any carbon border adjustment mechanism offers a fair deal for Canada in North American, European and Asian markets.

The future of fossil fuels in farming

This combined heat and power unit, installed at a farm near Bashaw, Alberta – about 150 kilometres southeast of Edmonton – is one example of Canadian pork sector energy innovation, but it comes with a large capital cost.

For fossil fuel alternatives to be taken seriously, no individual industry – and certainly not agriculture – should be singled out and demonized. Even the most die-hard environmental advocate likely does not hunt and forage for his or her own food, which almost definitely arrived through means that are reliant on fossil fuels.

Canada’s carbon tax is not a credible, effective or fair initiative to lead positive change, but it is one of many tools that could be used to drive the transition to greener alternatives. Emphasis ought to be placed on bringing alternatives online as soon as possible for the sake of availability and affordability.

Across the world, in virtually every industry, the push to reduce fossil fuel consumption seems to have been a driving force for not only environmental policy but also political and social change. At this point, the discussion is inescapable, and as time goes on, the calls to ‘go green’ will likely only continue.

For the agriculture industry, there is a great deal of opportunity to innovate and institute new best practices that not only welcome this shift in thinking but also showcase Canada’s leadership in this regard. But this transition can only take place if producers are free of the burden that additional costs –such as the carbon tax – place on investment.

Carbon pricing seems to be here to stay, and our industry needs to continue to adapt as it has always done. With appropriate and swift government support through proactive regulations and programs that attractively promote the transition to cleaner sources of energy, the industry can potentially weather the carbon pricing storm. In the meantime, farmers may have to wait a little longer, hoping for improvements that enhance their ability to operate in an ecologically responsible but also financially sustainable way.

Summer 2021 – Editorial

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The Summer 2021 edition of the Canadian Hog Journal is here!

To what extent has the federal carbon tax impacted Canada’s hog farmers? In this edition, we take a look at the numbers, along with the political context and possible solutions to overcoming this unavoidable problem.

What goes into determining hog futures? The ability to anticipate ups and downs in the market is a specialized skill – a bit like fortune-telling, but instead of using a crystal ball, analysts reverse-engineer quantifiable predictions using historical data and trends. Get the details in this edition.

Can pigs really fly? Ask most major pork processors and pig genetics companies, and they would certainly have you believing so! Thanks to opportunities for selling fresh pork and live pigs abroad, this unique and somewhat unexpected transport channel continues to gain traction in the industry.

Ontario Pork is celebrating its jaw-dropping 75th anniversary, and the organization is pulling out all the stops to make the celebration memorable, while looking ahead to the future. Board of directors changes in Ontario and Manitoba are also helping to lead the transition, and you can read about that work as well. With the lingering fog of COVID-19 finally starting to lift, find out how the pandemic has re-shaped agri-food industry events altogether.

In research, learn about new strategies being explored for feeding weaners more efficiently, along with the potential for feeding hybrid rye. All in the spirit of saving money and increasing productivity for producers.

Summer is in full swing, hog prices are high, and it seems that in-person gatherings are slowly coming back. Frankly, I am very eager to start seeing producers and industry partners again, as I have sorely missed the handshakes, conversations and laughs that are impossible through videoconferencing and phone calls.

On those treasured warm-weather days, my wife, daughters and I have been taking advantage of local parks for picnics and spending our weekends outdoors with friends and family. The cover image for this edition comes from my recent camping trip at Touchwood Lake in northern Alberta, and the editorial image comes from one of many visits to playgrounds in the greater Edmonton area, where we live.

Send me story suggestions and comments by emailing andrew.heck@albertapork.com. I would love to publish your perspectives, and I can work with you if writing is not your forte. (Some of us thrive in barns; others, in offices. That’s just the way it is!) Got any hot topics? If it’s interesting to you, it’s probably interesting to someone else, too. Pull up a chair at the fire pit so we can enjoy a beverage and hash it out. My ears are open and ready to listen!

National Pork Industry Conference

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Pork Commentary, July 12th, 2021
Jim Long, President-CEO, Genesus Inc.

Today we are on the way to the National Pork Industry Conference (NPIC) in Wisconsin Dells, Wisconsin. It’s a major annual swine industry event with close to 1,000 participants. Tonight, Genesus will hold a reception for several hundred participants and Monday we will be speaking on a Global Swine Market update. After the pandemic shut down of the last year it’s great to interact personally with industry people. Sitting in one spot shut down, zoom calling, it’s not our idea of a good time. We will give observations of what the NPIC and other industry going on, in next week’s Commentary.

USDA CFAP

Last week we wondered why USDA CFAP 1 top-up has been paid to Cattle, Corn etc. producers but not swine. We wondered what NPPC (National Pork Producers Council) is doing about it. We had searched their website and found a gambit of subjects but nothing that relates to CFAP 1 and the 100’s of millions of dollars committed by the U.S. government to swine producers. Is NPPC -MIA missing in action? Seems strange, six months after U.S. government announcement and more importantly after Cattle, Crops received their top-up in billions of dollars, swine nothing? As the saying goes “Houston we have a problem!” The recent announcement of executives leaving NPPC is an opportunity to find new leaders that can get results, not just go to meetings. At the NPIC it will be the opportunity to ask NPPC what they are doing to CFAP top-up? Also, it doesn’t hurt to call your Senator and/or Congressperson’s office. Swine Production is an important part of the food chain. The money committed in CFAP was for economic issues caused by pandemic. The hog price was disastrous, swine producers are being treated like second-class citizens.

Markets

Seems to us the U.S. market is holding. Pork cut-outs have gained strength, slaughter weights have decreased 16 lbs. from January, meaning lots of hogs pulled ahead. We expect slaughter weights to remain low and Packers continue to chase hogs. The 144 PRRS issue is a big enough deal to cut production from what would have been expected in the fall and winter. Nothing, in our opinion, happening to increase production despite high hog prices.

Jim Long – Global Markets presentation at NPIC

PRRS Ripping U.S. Hog Production

Pork Commentary, July 5th, 2021
Jim Long, President-CEO, Genesus Inc.

Everyday we hear about new PRRS breaks. The latest is that 4 – 6,000 sow units being depopulated. It appears PRRS 144 is ripping through Midwest. Some PRRS serotypes you can shut down by closing herd and waiting. It appears 144 doesn’t abate, pigs continue to abort and die. Some see best solution is emptying sow herd and start again. Some of the farms depopulating are filtered, so much for that as a sure prevention measure.

The 144 PRRS in our opinion is at a level that is cutting production on a significant level. It will be hog price supportive.

Other Observations 

Last week U.S. cash early wean pig averaged $44.49 each (40 lb. feeders $67.36). A year ago cash early weans were $6. The price increase is a reflection of the higher hog market but also the demand created by nurseries and finishers that are empty due to shortage of pigs caused by PRRS breaks.

Iowa – S. Minnesota hog weights are a real barometer of the current status of market ready hogs.

Iowa / S. Minnesota 

Ave. Slaughter Weight (lbs.)

 202020215/year average
January – first week289.0293.0286.0
June 26284.5276.9279.5
Decrease Jan – June4.516.16.5

It doesn’t take a Chicken Little Economist to see the huge decline (16.1 lbs.) we have seen in hog weights this year compared to last year or the 5-year average. Packers have been chasing hogs and producers have delivered. The 5-year low yearly average is 277 lbs. and that is usually around the first of August. We are at 277 lbs. a month earlier this year. This tells us over the next few weeks, if hog weights hold, slaughter will need to decline. In our opinion whatever scenario happens there will be less pork in the coming weeks compared to a year ago.

NPPC is the U.S. swine lobbying group in Washington. There was an announcement in January of further money from U.S. government for CFAP (a match of CFAP 1). Since then, Cattle – crops have gotten their Covid top up money. Pigs not. We hear repeatedly from NPPC how effective they are in representing producers’ interests. Seems other commodities have gotten what was promised. Why cattle got but not hogs? Better people – organisations representing them? A year ago Covid issues had early weans at $6, market hogs National price 30¢ lb. Losses over $40 per head. It was a Covid induced disaster. We understand there are people leaving at NPPC executive level. Hopefully a new fresh team will push harder for the interests of all producers.

We will be speaking at the annual National Pork Industry Conference (NPIC) in Wisconsin Dells next week. We will speak on our observations of the Global Hog Market and what it means to U.S. producers. We look forward to seeing you at NPIC.

Weekly sow slaughter is running at 62,000 per head level. Hard to put in context re herd building or liquidation. Sow mortality at record levels, PigCHAMP data base 13.9% last year (the highest ever), the genetic induced prolapse issue is spiking mortality. Some producers from Genetic Company A tell us 25-32% of sows shipped are receiving no value. This won’t be counted in sow slaughter data. It’s an epidemic sweeping through the sow base. How long can producers tolerate this sow loss armageddon. Dead sows don’t give pigs.

Summary 

We expect hog prices to stay strong with pork cut-outs at $1.15 end of last week. A high number that we all dreamed about 6 months ago. We expect pork supply to decline in coming weeks adding strength. High feed prices are challenging profitability going into fall and beyond. We expect lean hog prices will be higher than futures indicate currently fall and winter

June USDA Hogs and Pigs Report

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Pork Commentary, June 28th, 2021
Jim Long, President-CEO, Genesus Inc.

Jim Long Pork Commentary

In our opinion the June USDA Hogs and Pigs Report is snapshot of inventory that continues to overestimate the number of sows and hogs in inventory.

USDA Hogs and Pigs Report
June 1st
(1,000 head)

 202020212020/2021
Breeding Herd63266230-2%
Market Hogs71,03669,423-2%
Pig Crop
March – May
 34,644 32,584 -3%

Expected Farrowing’s down 4% June – August.

Pigs per Litter last 3 months 10.95, last year 11. No change.

Our Observations

Sow Herd – we have hard time believing the U.S. sow herd didn’t liquidate further in the last quarter. Sow slaughter, sow mortality, high feed prices and devastating PRRS, all we believe contributed to lower sow herd. We look at intended farrowing’s, 4% less sows expected to farrow but 2% less sows?

Market Hogs – still lots of empty finishers. PRRS devastating to many at levels almost incomprehensible. Packers chasing hogs despite an upside down world where Pork Cut-outs are less than the national hog price average. A reflection of supply and demand. We doubt many Packers think it’s a good plan to pay more for hogs than they are selling Pork for. The only saving grace is hogs they own and packer contracts at a percentage of Cut-outs. For producers owning Packing Plants, today is not as good a deal as it was a few months ago.

U.S. Tour

Last week my son Spencer and I continued to travel the Midwest.

Our Observations 

U.S. big place. To date we travelled 6,000 miles (9,500 kilometres); 14 hotels. Context, if you could drive Chicago to Moscow its 5,000 miles. Fact, Spencer got to drive a lot.

Crops 

We were in 12 states – saw lots of crop. Wheat harvest underway in Oklahoma – Kansas. Wheat cheaper than corn, wheat now going in feed rations substituting corn. Corn silking in Kansas. Was dry in some areas until big rains end of week, water lying in fields in 5 states. Crops looking good. Was very timely big rain. December corn has gone from $6.28 bushel on June 10 to close Friday at $5.19. Wouldn’t be surprised to see a 4 in front of December soon.

PRRS 

PRRS 144 is ripping production base in the Midwest. Up to 25% sow mortality, up to 40 -50% wean to finish deaths. It’s really nasty. It’s a terrible situation for too many producers.

Maybe we are missing something but doesn’t seem much appetite to build new sow barns with 30% increase in building costs, high feed prices, labor issues, and uncertainty of hog market future.

Sow Mortality 

Sow Mortality in some systems approaching 20%. Prolapses are a BIG issue. It seems to be tied to the world’s biggest genetic company. They push to blame feed, water, environment etc. etc. etc. Not sure if compensation will be offered to all affected (or just some) similar to the Chlamydia issue. When prolapses is a Genetic issue not sure how there is an easy fix. In meantime producers can continue to suffer or find a genetic alternative.

Hog Weights 

We met some on our travels who believe market hog weights will drop into the 260’s this summer unless slaughter really cuts back. The last 5 years the low weights for the year were 277 lbs. in the last week of July or first week of August. Current weights are near 278 lbs. Last week Iowa/Minnesota 6.2 lbs. lower year over year. We expect Pork Cut-outs will recover from $1.10 currently with supply decline from lower slaughter weight and or smaller weekly marketing’s.

Better Pork 

As a reader of this commentary you are aware that we believe as an industry to grow demand we need to produce Pork that has better tasting and have positive eating experience. On this trip we found many who tell the same direction needs to be considered. We delivered Genesus Pork to some and delivering to others in the future. No genetic company says they have Pork that tastes like cardboard. So, we have to show the difference. We aren’t afraid. Reviews to date are quite positive. After 20+ years of working to produce better tasting Pork at a competitive cost of production it’s refreshing to see the industry taking notice that there is a difference.

Summary 

We believe supply of hogs and or weights could decline significantly in coming weeks. PRRS, construction costs, feed costs, labor issues (lack of) are keeping a lid on herd expansion. The hog price should stay strong in coming months.

Midwest Tour

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Pork Commentary, June 21st, 2021
Jim Long, President-CEO, Genesus Inc.

This past week, after the World Pork Expo, we have travelled around the Western Midwest (Iowa – Nebraska – Kansas – Colorado – Minnesota). After 15 months in Canada’s Covid locked-down it is nice to be able to travel to Genesus Farms.

Observations:

The Midwest, appears to us, to be over Covid restrictions. All seems to be totally opened. Seeing a mask is rare.

Help Wanted

“Help Wanted” signs, including multiple giant billboards, are advertising jobs with starting wages included. One we saw yesterday – $30 an hour with $5,000 signing bonus. The U.S. has lots of jobs available not only in the swine industry but all sectors. Many employers have pointed out Government unemployment top-ups are keeping people from needing to work. Strange situation.

PRRS

PRRS is tearing up too many farms – abortions, sow deaths, wean to finish mortality (up to 40%). One large producer told us, after their experience with 144 PRRS, solution now is to empty sow farm asap after break. The ongoing losses are too great to try to do herd closure. In our opinion the losses due to PRRS will be a significant factor in hog supply.

“Prolapse Is Coming” 

“Prolapse Is Coming” is a real factor in sow farms. Sow mortalities over 15% are common with ongoing zero value sows. We are totally amazed the degree of this calamity. Many producers are being told by the source it’s their feed, water, management etc. The reality is its genetics. Own up and compensate? This is a real issue cutting production, dead sows don’t have pigs.

Better Tasting Pork

As we travel, we have a giant cooler of Genesus loins and ribs – we want people to try better tasting Genesus pork. No genetic company claims to have pork that tastes like cardboard (even if it does). The fallacy that any Duroc will make pork better is similar to thinking every Landrace or Yorkshire is the same. Genetic spread is a fact. We want people to compare and decide. Our industry needs a better tasting product to pull up our per capita consumption from the flatline of the last twenty plus years. Increased consumer demand is what will sustain higher hog prices. Does the Duroc you use qualify for Certified Duroc Program of NSR? If not, is this even a real Duroc?

Grain Futures 

The markets are volatile. Corn/Swine futures are running up and down. We have no opinion what Grain will do. Crops look good in Nebraska, High Plains of Kansas. Parts of Minnesota need rain, but today we are in Minnesota and its raining. We expect the Grain futures will continue other frantic action in the coming weeks. This is an industry not for the faint hearted.

China’s pork market is in freefall

The Chinese market is in freefall. Prices were plus 35 rmb per kilogram ($2.52 U.S. liveweight a lb.) in January. Last week 14.65 rmb per kg or $1.05 U.S. liveweight a lb. Hogs have dropped $350 U.S. per head since January! China weaner pigs were $85 U.S. last week, at first of year they were $250-300. Pigs bought January as weaners are going to market with $150 per head loss. China corn $11.50 U.S. a bushel.

We have told collective value of China Listed Public Companies have lost $85 billion U.S. in value since January. That’s a huge decrease. Another source from China told us that the Public Listed Companies are collectively losing $20 million U.S. a day, (about 6 million sows of production). Translate that across the country and it could be $100 million plus a day. All who can remember 1998 in USA, large swine investor firms failing – is 2021 China’s 1998?. Maybe third wave of ASF in China will spike prices.

We still believe that hog prices in China have been impacted by rapid selling of ASF pigs before they die. We still expect a price recovery in a couple of months. We also believe that sudden collapse of company stock values will dry up capital from exuberant China investors. We expect China’s expansion has had big brakes put on. USA 1998 was the end of the massive new construction of mega systems; 2021 China will likely be the same.

Expansion?

Our travels have led to several discussions on current building and feed costs. Both up significantly. Our sense, these two factors are tempering any expansion and when combined with PRS and labor issues, it becomes a real factor to slow things re expansion.

Last week it was announced that farmer owned/pork processor Wholestone Farms is planning to build a new pork slaughtering and processing facility in Sioux Falls, South Dakota. Project cost $500 million. Wholestone began in 2016 as a vision of Pipestone, a large veterinary clinic who also manages producers’ farms. Luke Minion of Pipestone and Chairman of Wholestone quoted in SiouxFalls Business; “Wholestone Farms is a partnership. I have 220 partners in Wholestone Farms, and that’s an awesome statement to make together.”

For all producers, whether partners in the project or not, increased packer capacity is good. The plan is to have 3 million head a year harvested in its first year of production. At this point zoning of site needs approval and it’s not clear if financing for project has been obtained. Full article link below.

Jim Long and Spencer Long in a Genesus Nursery

Healthy interest in disease resilience

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By Geoff Geddes

Editor’s note: This article was adapted from a piece written for Genome Alberta. For more information, contact Michael Dyck at mkdyck@ualberta.ca.

Renewed research funding expands projects

Studying disease resilience helps improve the genetics industry, which, in turn, means healthier, more profitable pigs for producers and the entire value chain.

Generally speaking, research project extensions are rarer than pigs that skip a meal.

Given that reality, it should speak volumes that a Genome Alberta-led project on improving disease resilience in pigs has been extended for three more years, worth $1 million in additional funding from Genome Canada – Genome Alberta’s not-for-profit parent organization, funded by the Government of Canada, which acts as a catalyst for developing and applying genomics technologies to create economic and social benefits for Canadians.

That is good news for producers, as it means more progress to protect their pigs and their bottom line.

“The new funding from the Genomic Applications Partnership Program [GAPP] will allow for additional research to validate some of our results, as it extends our current project from five years to eight years,” said Michael Dyck, Professor, Department of Agricultural, Food, and Nutritional Science, University of Alberta. “It will sustain the work we have been doing on disease resilience with PigGen Canada as an industry partner.”

PigGen Canada is a not-for-profit organization with membership from the Canadian, U.S. and European swine genetics industries, including Alliance Genetics, AlphaGene, DNA Genetics, Fast Genetics, Genesus, Hypor and Topigs Norsvin. The goal of PigGen Canada is to represent the Canadian swine genetics industry with a single voice and develop strategies and support for research, in concert with the priorities of the Canadian pork industry. More information can be found on PigGen Canada’s website: PigGenCanada.org.

“The main objective of the research for the GAPP project is to capitalize on key findings from our past research on Disease Resilience in Pigs,” said Dyck. “This will involve validating genomic and phenotypic indicators so that they can be incorporated into the breeding programs of PigGen Canada member companies. Selection for disease resilience in breeding stock is expected to reduce susceptibility to disease in the pig population and reduce the impact of disease on overall productivity.”

More resilient animals equal fewer disease issues

A diagram of the disease challenge model used to study disease resilience

The GAPP project involves using genomic tools to use bio-assays and genetic markers to identify animals that show superior resilience in the face of disease. From their efforts to date, researchers have pinpointed key phenotypic and genetic indicators that separate resilient pigs from their peers. With the project extension, they can further validate these traits and show how to incorporate them into breeding programs. Components of this research were published in the Fall 2020 edition of the Canadian Hog Journal article, “Selection of pigs that are more disease-resilient,” and in the proceedings from the 2020 Banff Pork Seminar: Advances in Pork Production, Volume 31, 137-144.

“As part of this ongoing research, we will continue assessing animals via the Natural Disease Challenge Model,” said Dyck. “Working with CDPQ [Centre de développement du porc du Québec], we set up a facility where animals are exposed to various pathogens in a commercial environment to see how they respond to a commercially relevant disease challenge.”

One of the prime indicators of resilience is an animal’s genotype and the genes that control an animal’s immune response, enabling pigs to continue growing and being efficient in a production environment when pathogens are present. The researchers also found indicator traits that predict which animals maintain their current food and water intake in the face of a disease challenge, and they hope such traits will help breeding companies better select more resilient pigs for pork production.

In collaboration with the University of Guelph, the researchers evaluated a test for immune responsiveness that can be conducted on young, healthy pigs, and they identified pigs that subsequently did better in the face of the disease challenge. These are the types of traits they are hoping to validate with more animals during the extension period.

In collaboration with Iowa State University and the University of Saskatchewan, the researchers will look at the association of these resilience traits and predictors with other important performance traits, so they do not select for resilience while having a negative effect on daily feed intake or average daily gain in an environment without major disease, for example. Clearly, researchers need to understand these interactions before incorporating traits into a breeding program.

Animal welfare improves with better genetics

By improving animal welfare, public trust follows. Most consumers surveyed for the Canadian Centre for Food Integrity’s (CCFI) 2020 Public Trust Research expressed ‘moderate’ concern for antibiotic use in animal agriculture.

“By working directly with breeding companies through this project, we are creating tools that can be used to improve pig performance through all levels of the genetic pyramid,” said Dyck. “If we can give breeders the tools to select more resilient animals, these will filter down to commercial herds and reduce costs associated with disease detection and treatment. This should enable us to use fewer antibiotics, thereby addressing society’s concerns around the use of antibiotics in livestock production.

Perhaps most importantly, decreasing the impact of disease also addresses the issues that come with exposure to pathogens, enhancing animal welfare in the process. Producers will know that the pigs they market come from an optimal health environment, and that knowledge can be passed along to consumers, enhancing public trust.

Though achieving results from research is often satisfying, the three-year extension on this project takes that feeling to another level.

“Often with research, you don’t get the opportunity to see the outcome integrated and fully applied in industry. The extra funding lets us take that next step of collaboration, so that’s very gratifying,” said Dyck. “It was PigGen Canada that came up with the initial idea of working with Canadian researchers on using genomic tools to improve disease response. I want to commend PigGen Canada for having the vision and ability to continue working with us to make this happen.”

Trust, patience crucial in ag mentorship

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By Shaman Crowe

Editor’s note: Shaman Crowe operates Silver Prairie Stock & Poultry Farm near Stettler, Alberta, 170 kilometres southeast of Edmonton. The farm specializes in conservation breeding of pigs, sheep, cattle, llamas and fowl.

Good mentorship is hard to come by

Everyone has to start somewhere. Good mentorship helps but taking the first step can be a challenge.

It is never easy to learn things on your own but having a great mentor can make all the difference. However, not every mentor is the same, and not all mentorships are a match made in heaven. That is why it is so important to choose the right mentor for your needs.

A mentor means many things to different people, but a mentor should be an experienced and trusted advisor – someone who has a background in whatever the mentee is attempting to learn. In agriculture, having a mentor is often overlooked, but it is an integral part of a successful program.

Whether you are growing crops or raising livestock, each endeavour offers unique challenges. Challenges are much easier to overcome with the knowledge to do so. You could spend the afternoon frustrated, throwing your tools, or you could find yourself a mentor to help steer you toward a solution.

Understanding goals is the key to successful mentorship

Understanding pigs’ needs is a key to effective herd management. Whether in pigs or otherwise, mentors and mentees need to share an understanding of goals.

Kunekunes are a pig that tend to serve several different purposes – existing as pets, for conservation breeding, exhibition or meat production. Depending on your goals, your approach to pig care may be different, as each purpose has its own means to an end. Generally speaking, best practices are likely similar no matter the goal, but the breeding match-ups and conformations expected will be vastly different.

Pet breeders will no doubt breed down for size, while conservation breeders tend to prefer a more traditional-looking pig, and production breeders tend to breed up in size, selecting for higher weights and faster growth rates. Kunekunes are quite capable of all these things. In fact, going by the recognized breed standard, there are plenty of differing but acceptable traits – nose length and overall size are just two examples, among many.

Just as achieving desired pig traits requires a calculated breeding approach, achieving desired outcomes for a mentee in any field requires a calculating mentor. It is necessary to look for likeminded people and cultivate those relationships. It is not always obvious to a prospective mentor that someone is looking for help – do not be shy to ask outright! Sometimes, a prospective mentor may fill the role simply by working with an understudy informally, not because an official arrangement is in place.

The challenge: not everyone makes a good mentor, and not everyone is a good mentee. A production breeder might not think to mention to a buyer that there is a change in the registry disallowing for the lack of wattles, because to them, this is not a deciding factor in their production program. Someone with a more traditional viewpoint might disagree. Neither of them is necessarily wrong – they just have different perspectives based on their own needs. If a mentor and mentee are on two different pages, it does not matter what kind of advice is being offered. The results will almost certainly be unsatisfactory.

There is much made about the role of the mentor, but what about the role of the mentee? An honest mentee must be open to both praise and criticism. The role of a good mentor is not to simply validate what the mentee already knows – it is also to point out areas where the mentee may be making mistakes or try to help mitigate issues prior to their occurrence. Mentees lean on the experience and expertise of their mentors, and that dynamic should be respected. If a mentor offers advice that a mentee chooses not to follow, it would be unfair for the mentee to blame the mentor for an undesirable outcome.

Even when the goals of mentees and mentors are shared, if every piece of advice or information given on behalf of the mentor is ignored, this can create a toxic relationship with potential for breakdown. Mentors invest their own time and effort to help mentees, and the chances are, they are also helping others or have priorities of their own. It is also unfair for a mentee to become upset if a mentor is not immediately available to assist, such as a delayed response to a text message or email. If a mentee fails to appreciate a mentor’s efforts, you can rest assured that the mentor’s energy will soon be directed elsewhere. Patience is key.

Mentors also need to accept the incredible importance of this most valuable position – not just as a mentor, but as a general ward of his or her trade and a steward of best practices. If a mentor sees something that is troubling, there is an obligation to speak up. If a mentor notices that an animal is not fit for breeding, the mentor needs to be comfortable having a conversation with the mentee about it. It is the respectable thing to do, and from a mentorship perspective, it presents a great learning opportunity.

Mentees must be able to trust in their mentors’ guidance. To that end, mentors must maintain the respect of their mentees and their own integrity by being transparent and open at all times. Authenticity counts. Mentors should not have higher expectations of mentees than they would for themselves. Be the kind of leader you could see yourself following, if the roles were reversed.

Great mentorships generate great results

Kunekunes crave attention, just like eager mentees.

An effective mentor will often put what is best for your program before their own wallet. They will put you in a position of assured confidence and set you up for success, independent of their inputs. A good mentor will look for gaps or areas of improvement in your program, communicate them to you, and advise you on how to move forward.

An ineffective mentor will look at gaps in your program and communicate them to others. They may be inclined to give you advice that would leave you dependent on their program for financial gain or discuss your shortcomings with potential buyers to the detriment of your business. This is why it is so important to find a mentor that suits not only your goals but your values as well.

Choosing a mentor should not be difficult, but it should take some of the guesswork out of a new pursuit. Anything that can make things easier on your farm should not be overlooked. Have the courage today to reach out and seek the advice of your peers!

World Pork Expo Report

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Pork Commentary, June 14th, 2021
Jim Long, President-CEO, Genesus Inc.

Last week the World Pork Expo (WPX) was held in Des Moines, Iowa. The first time it was held in three years. Cancelled in 2019 due to fear of African Swine Fever. Cancelled in 2020 due to Covid pandemic. This year a successful event.

Our Observations 

Attendance was solid but we expect lower than previous years. There were next to no international visitors due to Covid travel restrictions. The traditional Show Pig Event was moved to Indianapolis from WPX cutting attendance of WPX.

PRRS was a major topic as 1444 serotype appears to be currently having a devastating effect on production. The effect on breeding stock companies and their gilt supply has been significant. Fortunately, our company Genesus has been spared to date. We do remember, if you live in a glass house don’t throw stones.

Labor or lack of was discussed by both producers and packers. It appears the reality of labor shortage goes beyond the pork industry. Drive down a street in Des Moines, business after business has signs looking for employees, with most posting starting hourly wages from $11.50 to $16.50. We are in a world that will see advancing wages as employees cannibalize each other.

Packers tell us they can’t get enough people to do all needed to maximise carcass value. Producers tell us with the shortage of labor they can’t get enough in order to get all production routines done to maximum production. One large production system told us “Disease is hurting our productivity but the shortage of labor and quality labor in our farms is a bigger factor than disease holding down productivity.”

Prop 12 – California’s legislation to dictate swine production practises to other states was a serious discussion. Seems to us lots of confusion about what to do and if you do it what it’s worth. Seems to us many Packers looking at adjusting their internal production for Prop 12 compliance mainly because independent producers are unwilling to commit capital to do renovations to meet Prop 12 – 24 sq. feet per sow open housing.

Hog Market prices reaching over $1.20 lb. has many producers feeling good in the moment. Many wonder about the future. We would observe producers positive but not ecstatic. $7.00 corn is limiting profits and optimism.

It was nice the number of readers of the commentary who stopped at the Genesus Exhibit and pointed out the fact our prediction of markets last summer for the current year was much more accurate then “the Chicken Little Economists”. One producer said, “We should have followed your thoughts instead of the expensive experts that got it wrong.” Folks it wasn’t really hard to see what was going to happen. Last year Producers were losing mega money. There has never been and will never be more pigs in that scenario. Just like $7.00 bushel corn will not make more pigs.

Sow Unit construction is next to nothing. Building costs jumping up to 30% is increasing capital costs and ongoing breakevens. Sow Units are north of $3,000 a space. Finishers $400-425 a space. Lots of Sow Barns quoted but next to none are under construction. Throw in $7.00 bushel corn and the brakes are on for any significant construction. We expect some empty sow units will be the choice of many to grow production.

As Genesus is the leader in Pork Taste and Eating Experience we had many discussions about where our industry should be going. Many are frustrated by the lack of industry leadership to produce better pork that would drive domestic demand. Anyone who reads this commentary knows our constant banging of the dream for our industries opportunity to produce pork as “the other red meat”. Beef cut-out $3.35 lb, Pork $1.35 lb. Ribs – Belly, all products with taste due to marbling, are leading pork cut-outs and pulling up hog prices. We had Genesus Loins and Ribs at our tent, we appreciate the multiple positive comments about the superior taste.

Sow Mortality – we have written about the average of 13.9% in 2021 on PigCHAMP database. It was interesting the number of discussions we had about not only the mortality but Prolapses and Zero Value Culls. Prolapses are widespread in the industry from what we are told by customers of “Prolapse Is Coming” genetic company. 5-7% of herd is not uncommon. What we found interesting is producers telling us 25-30% of their cull sows are getting zero value. We never heard of this type of scale before. It also will be distorting the calculation of sow herd slaughter sows shot or zero value aren’t in sow slaughter. Amazes us producers can afford to tolerate such sow herd attrition and production value loss.

Summary 

Labor, Feed Costs, Disease, Sow Attrition are all big factors that will limit hog supply for the next year. We see nothing that is increasing pig production. We have a growing U.S. economy; we expect to see continued strong hog prices through the summer of 2022.