With the possibility of large numbers of hogs hitting the market this fall, packing capacity could once again become a critical issue for the U.S. pork industry. While the situation should not be nearly as critical as in 1994, and especially in 1998, taking a look at our ability to process hogs in a timely and efficient manner seems especially prudent. I have spent several days calling pork packers across the country to update the work I have done since 1995 tracking hog slaughtering capacity.
Every update has brought new knowledge and insight into the packing sector and this year's is no different. With last spring's closure of the Bryan Foods/Sara Lee plant in West Point, MS, and John Morrell's decision to close a shift at its Sioux City, IA, plant, I fully expected to see a reduction of U.S. slaughter capacity from the 420,875 head/day that I had reported in last year's update. But just as pork producers do the little things to maximize pig throughput, so pork packers have found new ways to increase their efficiency. Those efforts have resulted in an increase in slaughter capacity in spite of the two large losses last spring.
Comparing Apples to Oranges
Figure 1 shows the top 15 pork packing companies in the United States and their capacities. The total as of this past week is 424,835 head/day. That compares to 420,875 head/day last year -- but that comparison is apples to oranges. Allow me to explain.
When I started this project in 1995, I knew I did not have all of the plants accounted for in the United States, but felt I had enough of the large ones to allow us to simply add a "pad" for those generally smaller plants that I was missing. The "pad" then amounted to about 14,000 head/day and that worked well for awhile -- even through 1998.
However, as the business continued to consolidate, it became more and more possible to list virtually all of the plants in the United States. So in 2004, I added a number of plants to my list (See the footnote on the table). With the help of several industry contacts, I added another group of plants this year and have been able to confirm capacity of 3,930 head in seven additional plants. I still have not been able to confirm the capacities of 13 plants -- but believe they are small and would add no more than 2,000 head or so to this total.
So, the apples-to-apples comparison would be to deduct the 3,930 head of capacity from newly added plants to get a capacity of 420,905 head/day that is directly comparable to last year's number. The net gain is 30 head/day, and that is not a bad result considering that the two large losses amounted to 12,700 head/day.
Packer Growth Led by Smithfield Foods
Notable in this table is the growth of Smithfield Foods' capacity. That growth is mainly the result of acquisitions -- first of Farmland Foods in 2004 and then of Premium Standard Farms this year. Smithfield also increased the capacity of its Tarheel, NC, plant in 2000 when it received permits for increased wastewater treatment. A similar increase was recently granted for that plant. It has no impact on daily capacity, but does allow the plant to run full for six days/week.
Hormel's growth from 2004 to 2005 was the result of buying Clougherty Packing of Los Angeles and Triumph Foods' 2005 entry into the business, and rapid ramp-up of its second shift has added 17,500 head/day since 2004.
All of the other changes among these top 15 companies have been accomplished through plant expansions, new technology such as blast chillers or simply new operating procedures that allow higher throughput. Sara Lee remains at number 15 in spite of the closure of the Mississippi plant due to its large sow slaughter operation at Newbern, TN.
Will this capacity be sufficient for the larger slaughter runs I expect this fall? I think so but it could be tight.
Figure 2 shows my early-July forecasts of weekly slaughter based on the June Hogs and Pigs Report and my belief that we would see 1.0% to 1.5% more hogs the remainder of 2007 due to effective vaccines for circovirus. That increase is beginning to look a little low, but I don't expect the extra pigs to push weekly slaughter totals much over 2.3 million head this fall.
My estimated daily capacity of 424,835 head could handle the 2.3 million/week slaughter projection using 5.42 full days/week. That level of utilization has not historically put much pressure on hog prices beyond the normal downward pressure of the large meat supplies. Much more than that, however, could put producers in a decidedly disadvantageous position in selling hogs, and cause hog prices to decline more than would be suggested simply by the increase in meat output.
Look for a more detailed discussion of U.S. pork packing capacity, including a full listing of the top 50 pork packers, in the Sept. 15, 2007 issue of National Hog Farmer magazine.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.