There’s no question that the COVID-19 pandemic is having a dramatic impact on the U.S. pork industry. The implications have hit the entire industry hard and will be felt for some time into the future. For many, the production, price and ability to market hogs will be devastating. Through daily conversations with clients, I know producers are making hard decisions about the issues at hand. Those issues primarily center around the plant shut-downs and slow-downs. For the week ending May 2, we harvested an estimated 1,533,000 pigs. By my estimates, some 925,000 head were added to the backlog of pigs which was near 750,000 leading into the week. Hog harvest was 56% of total capacity and 63% of “market-ready” pigs for that week.
I think it is helpful to organize the conversations and business planning into four key considerations:
1. What are the short-term and long-term implications for me and for my company?
The short-term implications include the back-up of market hogs on farms from slow slaughter due to COVID-19. It may feel like a short-term issue, and let’s hope it is, but it is getting difficult to believe we can get plants running at a speed that would allow them to stay current with normal pig harvest plus work through any backlog of market hogs that have been pushed back on farms. The costs associated with continuing to feed these pigs plus the lost value if they don’t make it to slaughter before they become too big will be devastating. For many, the implications on business financials will force short-term losses, but considering the long-term implications if plant issues persist and recovery is less than 100%.
2. What are the best practices and recommendations for business survival?
Managing through crisis is difficult, especially when the crisis is an event unlike situations we have seen before. Who are the key influencers in your business that can help with nutritional changes to slow pig growth, euthanizing pigs on a farm if that becomes necessary, or measuring the financial impacts and the resulting losses to working capital and equity? Understanding the financial impacts may not be most important as you work through a crisis but may become the top priority at some point for survival of your business.
3. What are the realistic market scenarios I need to be aware of as I make business strategy changes?
This is the toughest question right now. Supply and demand will likely drive the market scenarios at some point, but how quickly that returns is dependent on how pork packers can recover to previous volumes and work through the backlog of pigs that are building up on farms today. We are learning, if we didn’t know before, the economic difference between live hog demand and pork demand. Maintaining breeding targets may not be the best strategy today if we don’t get live hog demand to improve drastically by year-end.
4. What actions should we be taking today to accelerate our recovery as we hope to emerge from this crisis?
The short-term decision is how to best produce and market existing pig inventories. Many producers are slowing gains to reduce the number of pigs that will have to be sacrificed. These decisions are based largely on availability to hold pigs longer, but also need to consider what other market options exist for those pigs in the coming weeks. Long-term implications include what realistic processing numbers look like over the next several months or longer. Are plants able to get back to the capacity they had prior to COVID-19? As an industry, we are hopeful. But it is hard to determine at this point – there are differences between plants in terms of square footage and layout that may have an impact on capacity, too.
Pork producers are making many difficult decisions. With very low harvest numbers through the first week of May, we are creating a backlog of pigs that will remain a problem unless we can get plants back up to 93% of capacity quickly and stay at that level through the end of August. Difficult business strategy decisions will need to be made by farms regarding breeding targets and overall production levels unless you believe plants will be up and running soon at pre COVID-19 levels. Producers need to talk to their lenders about lending levels, working capital, owner equity and other covenants as we brace for the current financial impact.
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