Source: Rita Jane Gabbett, MEATINGPLACE, 3/23/16


Livestock analyst Steve Meyer, who is vice president, pork analysis for EMI, has kept a close eye on pork processing capacity for some time. He warns that continued increases in production could outstrip slaughter capacity later this year.

Meatingplace asked Meyer to elaborate, given the recent announcement that Prestage Farms plans to build a 650,000-square-foot hog processing facility to process 10,000 hogs per day and produce 600 million pounds of pork annually starting in mid-2018.

Meatingplace: How far does this facility, albeit in 2018, go toward shoring up the capacity shortfall in the longer term?
MEYER: This plant will add to the ongoing expansion of the U.S. pork packing sector.  Two other state-of-the-art plants are currently under construction in Coldwater, Mich., and Sioux City, Iowa, but they will not be operating until summer 2017.

Meatingplace: When are you expecting hog supplies to overtake slaughter capacity?
MEYER: Q4 2016 hog supplies will put severe pressure on U.S. hog harvest capacity.   Based on the December USDA Hogs and Pigs report, we expect weekly hog numbers to be near or at the maximum throughput capabilities of U.S. plants for seven to nine weeks. Packers can handle a few weeks of this but seven to nine weeks will put additional strain on equipment and operating systems and, more importantly, workers. Any slowdown will result in rising carcass weights, which will further exacerbate a large supply situation.

Meatingplace: What are the implications for hog pricing?
MEYER: I would not be surprised to see a good number of hogs below $60 per hundredweight.

Meatingplace: Do you see hog processors being able to bridge the gap with extra shifts and Saturday production?
MEYER: Yes. But that is automatic. We will get them all dead eventually. The question is whether they can get them slaughtered at a pace that doesn’t back hogs up and exacerbate an already-ample supply situation. Further, pushing this many hogs simply puts all of the bargaining power in the packers’ hands and will result in lower prices than would occur if numbers were just below the capacity level.

Meatingplace: Do you see the outlook for pork demand supporting this type of expansion? How much additional capacity do you believe the pork processing industry needs?
MEYER: Pork demand would not support this kind of expansion if it happened tomorrow. We have had a great run for domestic pork demand with growth six of the past seven years and an average increase in real per capita expenditures over that 7-year period of just under 3 percent per year. But the U.S. population grows about 0.7 percent per year and per capita pork consumption has been within 5 pounds of 50 pounds per person every year since 1980.
Filling the five plants (Mason City, Iowa; Coldwater, Mich.; Sioux City, Iowa; Windom, Minn.; and Pleasant Hope, Mo.) being built or remodeled at present would take roughly 9.625 million head of hogs or 8.3 percent more than last year’s slaughter.  That will happen over 2.5 years or so, so the annual rate will be about 2.8 percent.  That leaves, on average 2 percent or so more hogs to sell overseas — plus any increase in hog weights. Fortunately, I see the [hog weight] factor being pretty small, but demand has to grow if we fill these plants. My bet is that they won’t be filled this quickly.

Meatingplace: What is driving pork demand, enabling all this production?
MEYER: The economic recovery has been important, since the recession was one of the factors that pushed demand so low in 2009. But I think the big change has been consumer preferences — dietary protein, low carb diets, much less fear of animal fats and cholesterol. USDA’s omission of a dietary guideline on cholesterol was important, I think. People have “permission” to eat meat and are willing to pay for what they want.

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