Bigger packing capacity may not cure low pork prices
New packing plants anticipated for opening this fall and in 2019 are good news for the U.S. pork industry, but it may not necessarily be the cure to low pork prices, an economist said recently.
The anticipated opening of the Prestage Foods pork plant in Wright County and the gearing up of a second shift at the Seaboard Triumph Foods plant in Sioux City means more competition for hogs in Iowa, but demand, timing and the level of expansion among pork producers are also factors in the market, Steve Meyer, an economist with Kerns and Associates, said at Iowa Swine Day hosted by Iowa State University.
Those plants, plus others slated to join them, will grow pork processing capacity in the United States.
“If we get all those plants open in the fall of ‘19, we’ve got 10 percent more capacity than we did in the fall of 2016, the last time we felt some impact of a capacity constraint,” Meyer said.
At the same time, however, a U.S. Department of Agriculture (USDA) report shows a growing U.S. hog herd. The U.S. inventory of all hogs and pigs on June 1 was 73.5 million head, up 3.4 percent from last year. This is the highest June 1 inventory of all hogs and pigs since estimates began in 1964, USDA said.
“The (USDA’s) hogs and pigs report says we’re growing the market herd at a rapid pace. I don’t see any slowing of that,” Meyer said. “The thing about the production sector is that we haven’t seen margins bad enough to stop growth. We might see that next year.”
With a growing U.S. hog herd, Meyer anticipates that packer capacity will be tight this fall again, though not as tight as in 2016.
“This fall we’re going to be very, very close again. Even with all the new capacity, we’re going to push capacity at about four weeks, and we’re going to be very close. In the fall of 2016, we ran 11 to 13 weeks above capacity,” he said.
The growth of the packing industry is tied to the growth in pork production, Meyer said. “Certainly, it’s good that we have capacity. This business was at its point that we could not grow any more until we got these new plants,” he said.
Still, he says pork demand and consumption must remain strong to support prices. Total red meat and poultry per capita consumption, which is nearing a record 220 pounds per person, and export markets have been good for the U.S. hog market. However, tariffs on U.S. pork could hurt in markets in China/Hong Kong and in Mexico, he said.
“Mexico takes 27 percent of our variety meats. China and Hong Kong take 60 (percent). We think that’s where the pain will probably come. It hasn’t really materialized yet,” he said.
Meyer said the growing pork industry could set weekly slaughter records next year. “Slaughter will be close (to capacity) in the fall of 2019,” Meyer said. “The one thing we’re encouraging producers is to stay current in your marketing.”