The Ontario pig industry has changed dramatically in the last decade as the production base has moved from many small farms to fewer, but larger farms. Between 1996 and 2006, the number of farms reporting pigs decreased by 39.9% but farm numbers in the swine farm class of 4,685 animals and over increased by 245%. Ontario farms tend to be sophisticated by taking advantage of the latest trends in production technology, environmental management, feeding systems, genetics, etc. Further, it is recognized that there are many factors that can affect profitability at the farm level including: input prices (e.g. feed prices), pig prices, exchange rate, trade regulations and environmental regulations. However, for the year of 2009, it has been a particular challenging year in terms of producer profitability due to a combination of many factors but most noticeably, low hog prices.
This project is to probe deeper into the farm income issue on Ontario swine farms. While it is well known that market hog prices in North America typically follow a cycle (i.e. usually 4 years in length) and that commodity prices affect farm profitability, this project goes beyond market prices to examine the relationships between profitability
and various factors including farm size, production type, and production performance. There are two distinct research problems to be investigated in this proposal and the first one is: (i) What are the key factors affecting swine farm financial performance? Specific factors to be examined include production size, production type, productivity, and etc. The second problem to be examined is: (ii) Can hedging lean market hog contracts improve swine farm profitability and risk management over selling on the cash market?
To perform the profitability analysis on swine farms data from CAIS and AgriStability will be used along with data from the Ontario Data Analysis project which has detailed financial and production information. Profitability by farm size will be measured on a whole farm basis as well as on a per sow, per pig, and per kilogram basis. To do the evaluation on hedging contracts historical lean hog futures data from the Chicago Mercantile Exchange and Ontario Pork’s Forward Contract Program will be used.
The information from this study is very important to the Ontario industry as it struggles for viability. Between 2005 and 2008 Ontario exported over 54% of it’s pork production. In Canada, the majority of pork is exported as fresh, chilled or frozen which accounts 75% of the total volume. These figures indicate that pork exports are still commodity based which means low cost production is imperative to long run profitability.