Continued volatility in the livestock industry makes it difficult to predict the future, but one thing is certain: Livestock producers are in a tough place at the moment.
Over the past two months, the COVID-19 pandemic has resulted in closures and slowdowns at several packing plants as more and more workers became ill. And even as those plants begin to resume operations, capacity will continue to be limited.
It’s a problem for an industry that relies on marketing consistency, says Lee Schulz, Extension livestock marketing economist at Iowa State University.
He says over the last few weeks, hog slaughter capacity has continued to drop by as much as 40%.
“Going into this, we had a daily slaughter capacity of around 510,000 head per day, and we were operating at capacity,” Schulz says. “If you lose 40%, that’s 200,000 pigs a day, so that’s a million pigs a week over a five-day work week. We are going to back up a lot of pigs.”
He says hog prices have rebounded some recently, but he estimates producers are losing anywhere between $30 to $60 per head. Although prices were decent over the first two months of 2020, Schulz says even with a market rebound, producers are looking at average yearly losses of $20 to $30 per head.
Schulz says despite President Donald Trump’s use of the Defense Production Act to keep plants open, it will be very difficult for packing capacity to return to pre-pandemic levels.
“There are going to be things done to create some physical distancing, which possibly will slow down the chain speed,” Schulz says. “You have a lot of workers who became ill, and labor was an issue before all of this happened. It’s hard to guess how it’s all going to work out.”
The cattle industry is also dealing with packer shutdowns, says Kevin Good, vice president for industry relations and analysis with CattleFax in Centennial, Colorado.
“The packers are going to have to find a bottom as far as daily and weekly kills before we can more accurately gauge this market,” he says. “This is obviously something we’ve never had to deal with before.”
Good says the industry will need to take steps to slow down weight gain.
“We have to slow everything down at the moment,” he says. “That’s not a very palatable message. If the cattle are fat and ready to go, you’re going to have wait your turn to get them out of the feedlot.”
A recent study led by Oklahoma State University ag economist Derrell Peel suggests the U.S. cattle industry will lose $13.6 billion because of the COVID-19 pandemic.
The study, which was commissioned by the National Cattlemen’s Beef Association, says cow-calf producers will see the largest impact, with pandemic-
related losses totaling an estimated $3.7 billion, or $111.91 per head for each mature breeding animal in the U.S. Without relief payments, those losses could increase by $135.24 per mature breeding animal, for an additional impact totaling $4.45 billion in the coming years.
Good says producers may choose to look at backgrounding or other options to delay selling calves. Feedlot placements were down 23% in March, and he expects that number to be equally large for April.
Rachel Gantz, communications director for the National Pork Producers Council, says more financial help is needed from the federal government.
“The USDA aid package announced earlier this month does not begin to address the losses incurred by producers,” she says.
“Many generational family farms will go bankrupt without immediate financial aid. We need significant and immediate financial aid from the government, without payment limitations, or else many of our farms won’t weather this pandemic.”
Gantz says while the NPPC appreciates the invoking of the Defense Production Act, it will not be enough to find a place for millions of pigs.
“While getting pork packing plants back online is foundational, the tragic reality is that millions of hogs can’t enter the food supply,” she says. “We also need coordinated partnership between the industry and federal, state and local authorities to euthanize pigs in an orderly, ethical and safe way. NPPC is also seeking additional federal government support to indemnify farmers for hogs they have to euthanize to prevent animal suffering and for funding to address depopulation and disposal costs.”
Gantz says while NPPC and other groups continue to press for pork exports, the industry needs much more to prevent even greater financial losses.
“Our hog farmers are underwater through no fault of their own,” she says. “Pork producers were at the tip of the trade retaliation spear in 2018 and 2019, losing $20 off the price of every hog. In 2020, they were forecast to make a $10 profit on every hog, until the COVID-19 crisis hit. ...
“According to economists Dermot Hayes and Steve Meyer, U.S. pork producers conservatively face a collective $5 billion loss for the remainder of the year.”