Olymel’s 2021 contract: how does it stack up?


Overview

For the past five years, the western Canadian hog price has fluctuated erratically. The seemingly age-old problem of hog price volatility has become worse in a context of ever-increasing costs of production and, more recently, with the economic effects of COVID-19.


Within the past year, Olymel, the largest hog buyer and pork processor in Alberta, has introduced new contracts to address the pricing problem. Comparing hog farmers’ actual financial returns over the past five years with hypothetical scenarios using these contracts, it becomes clear that short-term improvements have been made, which are worth acknowledging.


Starting in May 2020, Alberta Pork, as part of the Western Pork Boards’ Pricing Committee, issued a joint invitation to executives from Donald’s Fine Foods, Maple Leaf Foods and Olymel to have an open and frank discussion on the state of the industry and encourage pricing reform. For more information, read the full meeting summary.


As part of the discussions with packers, a $185-per-head cost of production was used as an approximation for the average hog farm in western Canada. While every farm business is different, $185 can be considered a reasonable five-year benchmark for comparing contract options relative to profitability. In reality, some producers’ costs in those five years have been lower, while other producers’ costs have been higher.


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Source : albertapork.com