* Hog farms Puratone, Big Sky restructuring due to losses
* HyLife sees decreased hog supply, higher prices
By Rod Nickel
WINNIPEG, Manitoba, Sept 13 (Reuters) - Canadian hog supplies should tighten only modestly in 2013, one of the country's biggest pork processors said on Thursday, even as farmers close their barns or struggle to stay afloat.
A severe drought in the United States has decimated crops, which has led to higher costs for feed grains and pushed North American hog farmers into steep losses.
"Obviously the challenge that we currently face is producers are exiting the business," Jason Manness, director of procurement at Maple Leaf Foods, told Reuters on Thursday. "We expect less hogs in 2013, but only marginally lower at this point in time."
Maple Leaf is the second-largest Canadian pork processor with weekly slaughter of about 90,000 hogs.
Canada's second-biggest hog farm operation, Big Sky Farms, entered receivership this week and another major hog farmer, Manitoba-based Puratone, received protection from creditors on Wednesday.
Both continue to operate, at least for the short term.
The country's largest hog farm operation, Manitoba-based HyLife, said on Thursday that it expects overall hog supplies to decrease, eventually pushing up prices.
"HyLife is also challenged but, together with our financial partners, remains confident and optimistic with regards to the future of our industry," the company said in a statement.
Hog supply currently is similar to a year ago, and Maple Leaf expects only a slight tightening in 2013, Manness said. Even as some hog farmers exit the business, others are becoming more efficient, offsetting some of the hog losses, he said.
Maple Leaf raises its own hogs to supply about 20 percent of its slaughter and has not reduced hog production or pork processing rates in spite of high feed costs, Manness said.
Canada's total inventory of hogs on farms has been edging higher for the past two years, after a government-subsidized downsizing effort, to about 12.9 million head at mid-2012.
Puratone, which sells about 500,000 hogs annually, has financing to keep operating during the 30-day period in which it will attempt to restructure.
The escalating value of the Canadian dollar and the United States' country-of-origin labelling law, which hampered hog exports, hurt the company along with the drought, said Puratone Chief Executive Ray Hildebrand in a statement.
"The market challenges have now been exacerbated by the U.S. drought to the point where there are no further operational restructuring pursuits or austerity measures available to us that could protect us from the liquidity crisis the industry is facing," he said.
Privately held Olymel l.p., which has combined capacity to slaughter 160,000 hogs per week at its three plants in Quebec and single plant in Red Deer, Alberta, said it's closely watching the situation.
"The fact is, there's a gap between the price producers pay to feed their animals and the cost they get for the animals, and in the long term it's very difficult to sustain," said spokesman Richard Vigneault.
Olymel has not laid off any workers due to the hog industry's woes. Vigneault could not say if Olymel was seeing any short-term boost in the number of hogs as farmers liquidate their herds.