Broad shutdowns of major U.S. meat packing plants due to COVID-19 are deepening woes for Canadian pork farmers, choking food supply chains and snuffing out demand for thousands of baby piglets sold across the border each week.
Pork slaughtering capacity in the United States has fallen by about 25 per cent after at least 13 abattoirs were forced to temporarily halt operations due to outbreaks of the virus, according to the United Food and Commercial Workers International Union.
Those closures include three of the largest pork processing plants in the country — Smithfield Foods in Sioux Falls, South Dakota, JBS pork processing in Worthington, Minnesota and Tyson Fresh Foods in Waterloo, Iowa — which together represent about 15 per cent of U.S. capacity.
With no room at meat packing plants, thousands of pigs remain on American farms, limiting space and demand for young piglets from Canada.
Indeed, Canadian farmers sell about six million piglets or “feeder pigs” to farmers in the United States every year — about 20 per cent of the country’s total. Delivered to finishing barns at an age of 24 days old or 40 lbs, the piglets are subsequently grown to a weight of about 250 lbs and then slaughtered.
Now, problems at the meat packing level have created backups throughout the highly integrated North American supply chain, cratering demand and prices for both live hogs at processing plants and for Canadian piglets at U.S. finishing barns.
“Every day those piglets go on a train to the U.S.,” said Rick Bergmann, a Manitoba pork farmer and chair of the Canadian Pork Council. “But now the finishing barns in the U.S. are jammed up. Farmers down there are telling us ‘if I can’t sell my big pigs how am I going to take your piglets?’”
Bergmann, who typically ships 800 piglets south of the border each week, recently gave a delivery of the animals away for free rather than incur the added cost of keeping them on his farm. With each of the 800 piglets costing $40 to raise, the hit to Bergmann’s bottom line was more than $32,000.
The picture is even darker in the U.S., where discussions have turned to culling herds of animals before they grow too large for slaughter, Bergmann said.
“We’re not there yet, but these are ugly numbers we’re seeing,” he said.
As the spread of coronavirus infections in Canada delays both the delivery of animals into processing plants and the flow of finished pork products to grocery store coolers, the parallel crisis in the U.S. is likely to exacerbate any domestic shortages and price increases here, said Chad Hart, an agricultural economist at Iowa State University.
That’s because, just as Canadian farmers send feeder pigs to the U.S., American farmers send pork products back to Canada, a “rhythm has been messed up by COVID-19 and the closure of plants,” Hart said.
Much of the reduced supply pumped out by U.S. meat packers is expected to be absorbed by the local market, reducing the potential for American meat to backfill any shortages of Canadian pork.
“We are in a weird situation where pork prices will be rising at the grocery store at a time when hog prices are the lowest in a decade and all because of a pinch point at the processing plants,” he said. “If you’re a hog producer, this is easily the most challenging time you have seen in your career.”
In a full-page advertisement in the New York Times on Sunday, Tyson Foods Inc.’s board chairman John Tyson warned that “millions of pounds of meat” will disappear from the supply chain as the pandemic forces processing plants to close, leading to product shortages in grocery stores.
“The food supply chain is breaking,” Tyson wrote. “Millions of animals — chickens, pigs and cattle — will be depopulated because of the closure of our processing facilities.”
If you’re a hog producer, this is easily the most challenging time you have seen in your career
A cruel twist for farmers is that the bottleneck in processing arrived at a time when global demand for pork exports soared following an outbreak of African swine fever that eliminated half of China’s domestic herd — sending the country on a global hunt for protein.
Canada was expected to benefit from that rise in demand after Beijing lifted a temporary ban on Canadian meat in January. Pork exports to China rose 46.4 per cent in February (before the COVID-19 virus swept through North America) compared to the same month a year ago, according to the Canadian Pork Council. March figures are not yet available.
“This is not a demand problem, it’s a supply chain problem,” Hart said.
But with social distancing and other procedures to protect against COVID-19 likely to be required for some time, jumping on that demand will likely remain a challenge.
“One reason the North American industry is so efficient is we can produce a lot of meat in a short amount of time,” said Hart. “To do that you need a lot of employees working very closely together. So the same characteristics that make our industry efficient are also what this virus preys upon.”
LONDON, ONT. — The unemployment rate in London increased dramatically in May, according to Statistics Canada.
London’s jobless rate climbed to 11.7 per cent in May, compared to 8.9 per cent in April.
It’s the lowest number of people working in London since 2003, when there were over 80,000 fewer people living in the area.
Based on a three-month rolling average, London-St. Thomas has lost 28,400 people from its labour force – and that’s just since February.
That figure includes Shannon Rumble, “Since the beginning when everything shut down, I haven’t been to work at all.”
Temporarily laid off from her job as a line cook, federal CERB payments are helping, but Rumble needs things to get back to normal soon.
“I’m a single mom, so (my daughter) can’t go to day care. My parents are helping out, but I can’t go to work if she can’t go to school or day care,” she explains.
“Its not just numbers, it’s people,” London Mayor Ed Holder isn’t sugar coating the situation, “It impacts people on a very personal level and if you are trying to make a mortgage (payment), or make sure your kids are alright, I get that.”
From the perspective of businesses, Holder says large employers who are part of his COVID-19 economic task force are balancing an urgent desire to get staff back to work, with the need to keep them safe from COVID-19.
“We will be doing business, we may just be doing it differently,” he says.
Holder predicts a moderate, consistent comeback as businesses reopen, “I am optimistic that, while I don’t think it’s a quick recovery, I think it will be steady.”
On a national level, Statistics Canada reported a record high unemployment rate even as the economy added 289,600 jobs in May, with businesses reopening amid easing public health restrictions.
The national unemployment rate rose to 13.7 per cent, topping the previous high of 13.1 per cent set in December 1982.
The increase in the unemployment rate came as more people started looking for work.
The increase in the number of jobs come after three million were lost over March and April.
The average estimate from economists is for the loss of 500,000 jobs in May and for the unemployment rate to rise to 15.0 per cent, according to financial markets data firm Refinitiv.
– With files from CTV’s Melanie Borrelli and The Canadian Press.
Getting mortgage default insurance is about to get harder after Canada’s federal housing agency announced stricter lending standards on Thursday.
The Canada Mortgage and Housing Corp. (CMHC) says it will no longer allow homebuyers to use borrowed funds for their down payment, will require a higher credit score from at least one borrower and will lower the threshold for how much debt applicants can carry compared to their income.
The changes, which come into effect July 1, will reduce the purchasing power of homebuyers who opt for CMHC insurance and likely leave insured mortgage applicants in pricey markets with fewer options, according to mortgage brokers.
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Should you buy a house during the coronavirus crisis?
CMHC’s new debt-ratio policy will lower homebuyers’ purchasing power by up to 11 per cent, according to Robert McLister, founder of rates comparisons site RateSpy.com.
For example, someone making $60,000 a year with a five per cent down payment and no pre-existing debt would be able to afford a home with a maximum home price that is roughly 11 per cent lower than what they would have been able to buy before the new rules, according to McLister’s calculations.
Economists say the measures could discourage some prospective homebuyers from entering the market.
CMHC said it will require a credit score of at least 680, up from the current minimum of 600. It will also lower the maximum amount of debt applicants are allowed to carry compared to their income.
To measure the latter, lenders use two key metrics: the gross debt service ratio (GDS), or the share of income used to cover the mortgage and other housing costs like property taxes, and the total debt service ratio (TDS), the share of income used to cover housing costs plus the cost of servicing other debts.
CMHC is lowering the maximum GDS from 39 per cent to 35 per cent and the maximum TDS from 44 per cent to 42 per cent.
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Open House: Pros and cons of reverse mortgages
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Changes to the GDS threshold and the credit score minimum will have the greatest impact on affordability, said James Laird, co-founder of financial products comparisons site Ratehub.ca and president of mortgage brokerage CanWise Financial, in a statement via email.
Banning the use of borrowed funds to finance down payments will likely have a more marginal effect, as most Canadians rely on savings, investments and financial help from family for down payments, Laird added.
Mortgage insurance, which protects lenders from the risk of borrowers defaulting on their payments, is mandatory in Canada for loans with a down payment of less than 20 per cent.
Mortgage default insurance is available from CMHC as well as private companies such as Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co.
While the new CMHC rules do not apply to Canada’s private mortgage insurers, they could adopt the new policy on a voluntary basis.
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Private mortgage insurance providers could become “the only games left in town” for homebuyers in expensive markets like Toronto and Vancouver, where borrowers generally have higher debt ratios, McLister noted.
McLister is critical of CMHC’s decision to tighten the rules at a time when the economy is already reeling from the impact of the COVID-19 public health restrictions.
“Normally, you don’t rock the boat when you’re already taking on water,” McLister wrote in a blog post shortly after the policy announcement. “But that’s what CMHC has done,” he added.
Canada’s housing agency has said it’s concerned that already high household debt levels will soar in the aftermath of the COVID-19 crisis, increasing the risk that overstretched homeowners won’t be able to keep up with their mortgage payments.
The new rules “will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth,” said CMHC head Evan Siddall in a statement.
U.S. West Texas Intermediate crude oil futures are trading at their highest levels of the week on Friday and inside the price gap created on March 9 when the market opened sharply lower, officially starting the coronavirus-related plunge. The price action strongly suggests the buying is getting stronger especially if traders fill the gap.
The market was initially supported after a report said OPEC and its allies led by Russia would meet on Saturday to discuss extending record oil production cuts and to approve a new approach that aims to force laggards such as Iraq and Nigeria to comply better with the existing curbs.
A second surge in the market occurred following the release of a much better-than-expected U.S. Non-Farm Payrolls report. This surprisingly strong report is a sign that the economy is improving much faster than previously expected, meaning that demand will pick up at a much faster pace than currently estimated.
OPEC+ Wants an Extension and Better Compliance
Saturday’s meetings would start with talks between members of the Organization of the Petroleum Exporting Countries and be followed by a gathering of the OPEC+ group, an OPEC+ source said, after Algerian and Russian media reported the meetings, Reuters reported.
Two OPEC+ sources said Saudi Arabia and Russia had agreed to extend the deeper cuts until the end of July but they said Riyadh was also pushing to extend them until the end of August.
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