Pork processors may be slowly increasing production, but it will take several months for packing capacity to reach anywhere close to pre-COVID 19 levels.
Steve Meyer, an economist with Kerns & Associates in Ames, said at its peak, packing capacity was down 39% on May 5. He added capacity increases over the past week have surprised analysts.
“The improvement happened as fast as I thought possible,” Meyer said during a webinar held by the National Pork Board May 12.
For example, Meyer said the Tyson Foods plant in Columbus Junction, Iowa, is operating near full capacity. He added the Prestage Foods near Eagle Grove, Iowa, is operating around 90%.
“But the Columbus Junction plant is the only one that has come back to nearly full capacity,” Meyer said. ‘Right now we are slaughtering 365,000 of the 510,000 hogs we can move when we are at full capacity.”
He said with a slow recovery, packers could be operating at 90% capacity somewhere near Aug. 1. With a faster recovery, Meyer said numbers could increase to 100 percent by Sept. 1.
Going into 2020, there were concerns about packing capacity and the ability to handle record pork production. Meyer said most analysts were concerned with fourth quarter numbers prior to the pandemic.
He said food service demand is starting to inch its way back as more states are allowing restaurants to open on a more limited basis. Export demand remains excellent, Meyer said.
Packer margins continue to be strong, although those numbers should be tempered somewhat.
“Packers are only making money off the pigs they slaughter,” Meyer said.
He said large numbers of pigs are going to need to work their way through the system to accommodate reduced packing capacity. Meyer said euthanasia is being used in several states and says, in a worse-case scenario, that number could be in “the millions.”
“If we are only going to get back to 90% capacity, we are probably going to have to see some draconian measures,” he said.
Meyer said pork production is currently running 24% below year-ago numbers. Carcass weights are up 3.5 pounds over the past two weeks, and he said those weights are likely to climb above a record-setting 220 lbs.
With demand high and packing capacity reduced, Meyer said while the nation will not run out of pork, some regions may find it very sparse at the retail level.
“We are still producing 70 to 75% of expected amounts,” he said. “Some places will have no pork at some times, which will primarily be determined by the store’s supplier.”
Meyer added that despite a shortage of pork, he believes exports need to continue.
“We need to tell people not to stop exporting. We have worked many years to develop these relationships,” Meyer said. “China still needs product.”
While cutout values are setting records, ham prices are down. Meyer said that could represent a buying opportunity for nations such as Mexico, which is a large customer for U.S. hams.
He said sow slaughter will accomplish very little in the short-term, although it could help with high numbers going into the fourth quarter and into 2021.
Meyer said by his estimate, pig placement needs to be reduced by 15% for the foreseeable future. He said losses could mount quickly for producers, adding indemnity payments for producers forced to euthanize animals would be beneficial.