Canadian pork producers are worried that low crop yields in the United States due to drought conditions are causing grain prices to soar to a point where it is not economical to raise pigs in Canada, according to the Canadian Pork Council (CPC). The current feed situation and lack of carry-over stock from last year’s crop supports the argument that it is necessary to reduce corn ethanol production to increase the amount of grain for livestock feed.

“Grain is by far the largest cost component of raising pigs and marketplace realities are such that pork producers cannot simply pass along added costs to buyers,” according to Jean Guy Vincent, CPC chairman. “Margins become squeezed and producers need to either absorb heavy losses or, unfortunately, get out of business.”

The CPC encourages governments to review their ethanol policies in an effort to temporarily relax the mandates and targets for biofuel production in response to the crisis.

The anxiety felt by Canadian pork producers over the availability of feed grain at an affordable price was heightened when the USDA cut its forecast of U.S. 2012 /2013 corn ending stock to 650 million bushels, according to CPC. This is the smallest ending stock since 1995/1996 and is partially responsible for the 50 percent increase in future pricing in a relatively short period of time.

The United States estimates that 40 percent of the corn crop will be made into fuel for cars and trucks compared to 36 percent for animal feed. Hog producers have been vigorously competing for a resource that is in high demand and shows no signs of dropping without changes to global policies, according to CPC.

“The status quo is not sustainable for the hog industry. Pork producers need to work with all members of the value chain to address short and long term issues,” said Vincent. “The recent market conditions and feed prices were unimaginable two months ago and producers should not have to decide between losing their farm or increasing their debt to pay for unsustainable feed costs.

Accurate and timely information will be vital to surviving the latest circumstances affecting the Canadian hog sector. Producers, processing sector, financial institutions and governments will need to work together in the short term to further strengthen the pork sector. A task group made up of producers and federal government officials has been established to review the situation and identify measures to assist Canadian pork producers to manage through the latest challenge. The next few months are now expected to result in heavy losses at a time when, only weeks ago, pork producers were expecting to be in a much-awaited period of favorable economic conditions.

The United States government was able to intervene in the market and support U.S. pork producers through USDA’s $100 million supplemental pork purchase. The CPC wants to react rapidly to the situation. Ethanol policy changes, ethanol demand on this year’s crop and unrecorded increases in the acres of crops planted in North America could have an effect on feed prices but information will not be available for several months.

The CPC will continue to work with the federal government but is encouraging producers to continue their due diligence to manage their working margins, liquidity and develop strategies to source affordable feed for the next year.