The closure of the Excel plant at Marshall, MO, has been offset by double shifting at Excel's Ottumwa, IA, plant and production increases at Farmland's Crete, NE, facility.
The pork industry will not have to stretch or scramble for shackle space this fall.
“We will have no difficulties with slaughter capacity this year,” says University of Missouri economist Glenn Grimes. “Capacity in the fourth quarter of 2001 will be similar to the fourth quarter of 1998, at about 395,000 head/day. However, we will have two million less hogs going through the system.”
Packers worked long hours to slaughter 27.586 million head of hogs in the fourth quarter of 1998. This year, only 25.5 million hogs will be marketed.
With those numbers, Grimes figures the average price in the fourth quarter will be $43/cwt. offering a $12 to $15/head profit to average producers with a $38/cwt. production cost.
Excel Corp. closed its Marshall, MO, plant July 25 and will spend $15 million to convert the 7,000-head/day slaughter plant to a case-ready plant. However, Excel has added another shift to its Ottumwa, IA, plant, increasing daily slaughter to 16,000 hogs to offset the closure.
In addition, Premium Standard Farms is spending $38 million to add a cutting floor and distribution center to the Lundy's plant at Clinton, NC. The project will be complete by January 2002 and will add 3,500 head/day to the current slaughter of 7,000 head/day.
|Company||1996||1997||1998||1999||2000||Fall 2000 |
|Total||250/day and up||387,420||408,520||407,920||381,920||388,620||388,720||381,020|
The industry lost the capacity of 7,000 head/day when Farmland sold the Dubuque, IA, plant to Smithfield Foods and it closed in April 2000. Also, Rochelle Foods' Rochelle, IL, plant dropped to a single shift but made the shift longer and added a Saturday shift. The change moves slaughter from 7,000 to 4,500 head/day.
Bacon and ham processing capacity may lag this fall because a fire severely damaged the Farmland plant at Albert Lea, MN. Grimes figures smokehouse capacity is all right for now, but it may be tested in the fourth quarter.
Excel is following the trend of renovating slaughter plants into further processing facilities, reminds Iowa State University economist John Lawrence. IBP's Council Bluffs, IA, plant and Farmland's Dubuque plant are good examples.
“During the '70s, '80s and early '90s, packers were in a consolidation mode and quickly reinvested profits in enlarging plants or building new plants,” Lawrence says. “Since 1998, packers have invested more in further processing and less additional slaughter capacity.”
Grimes stresses that there is no excess slaughter capacity.
“The industry is still precariously close to the edge,” he says. “If we had a fire at Bladen County, NC, all hell would break loose.” That's where Smithfield Foods' plant, the nation's largest pork packer, can process as many as 32,000 head/day, subject to an annual maximum.
Historically, the industry averages 1.2 to 1.5% more slaughter pigs per year. That means by 2005, there will be 105 million hogs produced annually.
More slaughter capacity will be needed, but there is no building after Seaboard Farms abandoned plans to build a $130 million, four million head/year plant at Elwood, KS.
Looking forward to the fall and winter of next year, the picture of slaughter capacity is blurry, at best.
“Right now producers are showing a whole lot of discipline,” Grimes says. “The temptation is high with $50 hogs it is terribly difficult not to place some gilts.”
Grimes places high odds that some growth will occur and affect the fall 2002 pig crop, but he hasn't been able to find clear signals from the industry.
“Our gilt data is not showing consistent signs; one week shows breeding herd growth, but the next (gilt) slaughter is up. There are no solid signs,” he says.
Purdue University economist Chris Hurt expects producers to begin expansion yet this year.
“The losses of 1998 have been covered, and producers are now earning large, positive cash flows; the threat of foot-and-mouth disease, while not over, is receiving less media attention, and the long-term outlook now appears positive,” Hurt says. “However, expansion needs to remain at only 1 to 2% this year. Keeping controlled expansion in place has never been easy for the pork industry.”
One reason there's enough slaughter capacity this fall is that the industry's productivity growth rate has slowed down from the 5% per year growth during the last two years.
Grimes finds that the productivity growth (figured from litter size, litters/year and federal inspected slaughter weights) has bounced around over the last several years.
For the years ending on June 1, 1998 and 2000, the growth was 5.78% and 5.15%, respectively. In 1999 and 2001, growth dropped to 2.74% and 2.81%, respectively.
The culprit may be disease, as large producers are having problems with porcine reproductive and respiratory syndrome and transmittable gastroenteritis, he says.
Steve Meyer, director of economics for the National Pork Board, reports slaughter capacity for 1996 to 2001 in Table 1 (See page 36).
While the daily slaughter capacity is 381,020 head for plants that process more than 250 head/day, Meyer points out that smaller plants across the country can process 12,000 to 14,000 head/day. That increases current capacity to about 395,000 head/day.
PSF's expansion at the Lundy's plant, along with the early 2002 start-up of Pork America's Estherville, IA, plant and the TaiShin Foods plant at Pleasant Hope, MO, will increase slaughter capacity to about 400,000 head/day (See “Pork America Buys Plant, American Premium to Choose Site”).
Pork America, a national pork producer cooperative, is buying a small packing plant at Estherville, IA. The plant will begin start-up operations in mid-September, says Jim Lewis, Pork America board member and Welcome, MN, pork producer.
The plant will serve as a “proof of concept” facility for value-added producer cooperatives that do not have access to slaughter and processing facilities, Lewis says.
“This plant will help the producer groups get up and running and help them test the market with their products. This is a real opportunity to maximize the value of their products,” he says.
American Pork of Iowa (APIA) a limited liability corporation, wholly-owned by Pork America will operate the former Ace Union slaughter and processing plant. Pork America officials expect the cooperative to purchase other packing facilities around the country and set up similar operations, Lewis says.
At start-up, between 10 and 15 full-time employees will process 100 head of hogs/day. Within one year, Pork America officials expect the plant to reach full capacity of 600 head/day. As many as 40 workers would be needed for that level of production.
The equipment in the plant is in good condition. Workers began cleaning and preparing for operation in early July, Lewis says.
American Premium Foods, a 247-member cooperative based in Belleville, IL, will select a packing plant site this month, according to Jim Burke, president and CEO. The cooperative markets pork under the Meadowbrook Farms brand.
American Premium Foods has narrowed the list of potential building sites for its 2,500 head/day plant to three cities: Clinton, Rantoul and Gridley, IL. Construction of the plant will start this fall, Burke says.
The group has expanded the plant design by 30%, thanks to the addition of another pork producer group into American Premium, Burke says. The cooperative also was awarded a $500,000 USDA value-added development grant and has hired Joe Leathers as vice president of marketing and sales.
The higher hog prices are helping make the producer members more comfortable with the project, Burke says.
“Building a plant is an expensive proposition and recovering some of their losses is putting many producers back on more stable footing,” he says. “This project will dramatically change the U.S. pork industry and doing something of this magnitude takes time. Our members are anxious to move forward, but we must do it right the first time; there are no second chances here.”