Pork Commentary

Jim Long President – CEO Genesus Inc.


May 5, 2014

Canadian Packer Saga Continues?

It is reported on Tuesday this week, a Toronto, Ontario, Canada judge will be asked to appoint a receiver to sell the assets of Quality Meat Packers and Toronto Abattoirs Ltd., two related companies. The two companies owned by the Toronto’s Swartz family, owes about $70 million to creditors that include pig farms. Capacity of plant was 30,000 per week approximately. The plant has been owned by the Swartz family for three generations. Some reasons given for the business failure:
  • Recent jump in hog prices
  • PED

Our Observations

  • All packers have had increased hog prices.
  • PED has hit the whole industry. Ontario has had PED but at levels much lower than in the USA.
  • 70 hog farmers are not paid. Hogs were bought, the pork was sold. Why is there no money for the farmers hogs?
  • 750 employees will probably lose their jobs
  • We are in tough business it’s not for the faint hearted. Adjust or die. Other packers are doing just fine in Ontario, Conestoga a competitor to Quality has just expanded. Fearmans Pork has new aggressive owners moving forward. Buying in the same market, selling pork in the same market. We expect the difference is leadership – management focus.


We are having record high hog prices a reflection of pork demand. It’s interesting that in the midst of record profits companies like Quality Meats and Choice Genetics go into receivership and or bankruptcy. How bankrupt companies expect to keep their customers when suppliers will demand cash and warranty or product assurances can’t be really guaranteed with credibility. It’s like believing in the Easter Bunny. Maybe in Choice Genetics case who are minus $20+ million to creditors, it is possible as Group Grimaud the French shareholders of the bankrupt Choice Genetics company breeds rabbits as a primary business. Business plan: Easter Bunny Saves the Day!


We have written about the margin calls our industry has probably paid in the last few months. Not only putting huge cash flow pressure on companies but also limiting profits in a time of once in a generation profitability. Mark Greenwood, Senior Vice President, relationship management, Agstar Financial Services writing in April National Hog Farmer. “We have producers who have practiced margin management over the past year who are now funding margin calls at a record pace. Table 1, shows our portfolio at Agstar. You can see increased volume compared to a year ago. The chart shows that we are up $500 million, and our best guess is that the majority is sitting in Chicago today.” Agstar is on bank with almost $500 million in Chicago! How much is in Chicago funded by producers and the banks? $2 billion? Seems the sharpies not the producers got a lot of the money in the hog price run up. If you want to lose all faith in trading read the book Flash Boys by Michael Lewis. Rigged Casino, Sharpies win, Main Street loses. Margin calls – Hedging and PED combination could be limiting profits of many of a producer. This will limit expansion as profits to fill the equity hole created over the last few years will not be filled as quickly as we might expect.


Hog prices still very strong at $112 lean. We expect supply will start to see aggressive declines towards the end of May. Prices should surge higher. A producer asked last week if we can average $1.00 lean for the next 18 months. Good question – Our Answer: We expect so with confidence. Last week we were in Kansas, Oklahoma, and Texas. We found it remarkable the large cattle feedlots we saw that were totally empty or were significantly less than full. Obviously a cattle inventory the lowest in sixty years leads to empty feedlots. Less beef is obviously quite bullish for pork prices. Droughts, high cost of business, capital needs, lack of profitability, you wonder if the cattle industry will ever expand or just keep contracting.

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This post was written by Genesus