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CME: Odom’s Sausage Plant to Close

17 October 2012, at 11:42pm

US - Conagra officially announced on Tuesday what many pork industry observers had expected: It will close the Odom’s sausage plant in Little Rock, Arkansas, write Steve Meyer and Len Steiner.

Conagra bought the company in April and many expected immediately that the branded food giant did so primarily to get control of Odom’s Tennessee Pride brand name and line of value-added products. Conagra has exhibited little interest in recent years in being in the primary animal harvest business, preferring to buy raw materials from others and using them to make finished fresh and frozen meat products. They do operate the Abbyland Foods sow harvest plant in Abbotsford, WI and indicated that Odom’s sausage manufacturing business would be moved there. The table on page 2 shows U.S. sow slaughter plants and their daily capacities as compiled by Paragon Economics for National Hog Farmer magazine in May 2011.

A Meatingplace story also indicated that Little Rock’s “hog processing“ will move to Wisconsin. We are not sure if that means slaughter or not but we doubt that the Wisconsin plant has enough slack capacity to take up all of Little Rock’s sow numbers. Regardless, the closure suggests no crisis in sow harvest capacity. As can be seen in the chart at right, weekly U.S. sow slaughter has run well below even the four-day capacity of the nation’s sow plants for many years. The surprise is that there has been no more rationalization of this excess capacity over time. We believe this “staying power“ is a function of old, generally depreciated-out plants that require companies to cover only small levels of fixed costs over variable costs and the fact that the sausage business usually carries good margins associated with longestablished brand names. And some are regional stalwarts. Most DLR readers do not recognize Wampler’s or J.C. Potter but the ones in Tennessee and Oklahoma, respectively, almost certainly do. The same is true of many of the other names in the sow plant table.

The other lesson of the chart at top right is that the supply of sows is a continuing challenge for sausage companies. There are simply fewer and fewer of these animals available. After the slow decline of the early ‘80s, sow numbers stabilized through 1995. Note that the dramatic drop in 1997 was BEFORE the economic bloodletting that saw cash hogs fall to $8/cwt live in the fall of 1998. The industry was already consolidating rapidly. Weekly sow slaughter then averaged about 60,000 head for a decade before dropping again in 2009 as high feed prices took their toll. Rising productivity (more litters/sow, pigs/ litter, weight/pig) have kept total hog slaughter and pork output growing—but that does nothing to help the supply of raw materials for these specialized processors of cull breeding animals. We suspect that more rationalization of sow slaughter capacity is coming.

USDA released it monthly estimates of average meat prices on Tuesday and the data indicate a soft month for pork, beef and composite broilers. All of those prices were lower for the month with the decline for composite broilers (2.6%) being the largest and the fall for Choice beef (0.1%) being the smallest. All of those comparisons are for September versus August.

Whole broiler prices gained 1.5% to reach a new record high of $1.455/lb. in September while turkey prices continued their normal seasonal run-up gaining 2.2% to reach $1.621 per pound. Pork and turkey prices remain lower than last year by 3.3% and 1.5%, respectively, while both beef prices were higher with the all-fresh series up 4.2% versus last September. Broiler prices are the big gainer relative to September 2011, with whole bird values exceeding last year by 12.4% and the composite broiler series gaining 5%, yr/yr to $1.856/lb.

These price data come from the Bureau of Labor Statistics which computes the Consumer Price Index (CPI) each month. The CPI for all goods rose to 231.4 (with 1982-1984 =100) in September, 1 point or .5% higher than last month and 2% higher than one year ago. In a reversal of recent trends, food prices grew at a slower rate than the CPI for all items, gaining 1.6% yr/yr. As is suggested above, poultry prices were the leader among proteins, gaining 4.8%, while meat prices grew by only 1.6% and dairy prices fell by 2.3%.

Further Reading

You can view the full report by clicking here.