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Jim Long Pork Commentary: packing capacity coming back

Last week US pork packers started to recover some production capacity lost to COVID-19 plant issues.

15 May 2020, at 7:30am

US 2-day Harvest - Friday (May 8th) and Saturday (May 9th):

  • Last week - 554,000;
  • Prior week - 403,000;
  • Last year - 449,000

For the week (ending May 9th):

  • Last week - 1,768,000;
  • Week before - 1,553,000;
  • Last year same week - 2,232,000

A gain of 150,000 head Friday-Saturday compared to the same 2 days week before. With Tyson - Waterloo and Logansport, Smithfield - Sioux Falls, JBS- Worthington, plus others coming back online there is hope the daily harvest numbers will continue to increase.

Other Observations

There is no doubt hogs have been backed up.

Probably a couple million hogs at least. Hog slaughter weights going up now in the 221 lb. carcass range. The week of April 10th they were 212.54 lb. A gain of almost 9 lbs., almost 12 lb liveweight up. That’s at minimum a week's worth of hogs backed up (2.5 million?).

US Pork cut-outs

About three weeks ago US Pork cut-outs were 50₵/lb. Some Pork Bellies were at that time, being sold at 30₵/lb. Last Friday skin on 10-12/lb. bellies were $2.96/lb.

Pork Cut-outs closed last Friday at $1.16 - up from 50₵ three weeks ago. That’s an increase of $146 per head. Goes to show what happens when supply decreases in a market that has solid demand.

If we use the current National Daily Base lean price 53-54 percent hogs price of 63.32₵/lb. and subtract that from US pork cut-out of $1.16 we come up with a difference of 53.22₵/lb., times a 220 lb. carcass, we have Gross Packer Margin of $117 per head. As far as we know the biggest spread in history. Certainly, a huge incentive for every Packer everywhere to get hogs slaughtered. An idle plant will be losing money and missing out on huge, huge profit margins.

Farmer arithmetic: a plant with 10,000 head capacity, sitting idle is short at least $1.2 million a day in today’s market.

No doubt there is sow herd liquidation

Latest weekly sow slaughter numbers were 68,409 heads, last year average 57,500. The sow price has collapsed, most in the 15₵/lb. range. Sow packer Margins are probably at record levels. The adage “You only pay what you have too” comes to mind.

We expect US sow herd decreasing at 15-20,000 sow a week range. The combination of sow herd liquidation, less gilt retention, planned abortions, litter size management, and euthanization is certainly cutting the number of hogs coming this fall and into next year. We estimate fall hog numbers could be up to 150,000 less a week than were expected the first of March.

Plant capacity

We have read in several places that there are estimates the US hog plant capacity could be cut by 80 percent due to Coronavirus operational rules. We question this. We believe some plants are running over 80 percent now. How are Saturdays factored in this? There is no arbitrary 80 percent rule, it’s just speculation. Time will tell.

We expect American ingenuity driven by opportunity will be yet a huge factor.

Running out of meat is not expected in America

  • Some Wendy’s have run out of burgers;
  • Meat sales are being limited by some retailers;
  • A few states are allowing restaurants to re-open;
  • Some retail meat counters running out of different meats.

Demand is there, however, the supply of pork, beef, and chicken have all been cut by plant issues. President Trump seems to get it. He invoked the National Defense Act to get plants up and running.

Last week at a meeting President Trump was having with Iowa Governor, Kim Reynolds, US Secretary of Agriculture, Sonny Perdue, was asked for a timeline regarding plants reopening. His reply “probably a week to 10 days where it is fully back up.”

American society is used to getting what they want when they want it. Running out of meat is not expected in America! Let’s hope plants get rolling and to capacity.

The financial impact of the current situation for many producers is terrible. This is a resilient industry. Some positives include continued strong exports and obvious domestic pork demand.

Get plants close to capacity, many of the current issues in the market go away.