As pork processing plants got back up to harvesting 437,000 head of pigs on June 4, Scott Brown, an ag economist at the University of Missouri, told AgriTalk host Chip Flory that it’s just a reminder of how resilient the pork industry is.
“Think about what we’ve thrown at the pork industry with COVID-19, and to think we’re actually seeing all these signs of recovery in terms of processing, it’s a very good situation,” Brown said.
Flory agreed it’s a much-improved situation, but is it enough to avoid euthanasia in the hogs waiting for market?
That’s the big question, Brown agreed.
“I think that the truth probably lies somewhere in between here. I don't think we can say we're done euthanizing hogs at this point,” Brown said. “I do hope we don't have a slip up and start to see daily processing go back down again. But it seems to me It takes us a long time to work through the panel of 2-million-plus hogs that are backed up in the country.”
Did Analysts Overestimate Euthanasia Numbers?
Because of this, Brown believes this will result in some pretty strong supplies through much of the remainder of this year and that may be what keeps a lid on a lot of price gain.
“I'm really interested in seeing what USDA gives us with a June WASDE here next week,” Brown said. “But I guess I look at it this way, we were up about 8% first quarter and it looks like we'll be down 8.5+% for the second quarter. I'm actually going to suggest we will be up 5% in terms of production in the second half of 2020 for what will still be an annual increase of about 2.9%.”
The capacity that's come back in the last month has surprised some USDA analysts as well, Brown added. What may have been a fairly large euthanizing assumption now may amount to a lot more pork on the marketplace.
But that’s not a negative for the hog market, is it? Flory asked.
“I don't think so. I mean, there's some fine balance here,” Brown said. “Food service is trying to open here and we’re going to get some positive lift from that. I think once we get beyond that reopening, we might have some drag from less income in our pockets. But we also want to have enough product. The last thing we want is record high prices.”
He points to the dairy industry as an example. When dairy and cheese prices went from $1 to $2.20 in way too short a period of time, he said while he appreciates it for dairy producers, he worries about the consumption effects.
Is Liquidation Really Happening?
Brown said he doesn’t think there's been a lot of liquidation. Once you construct facilities, you don't run them at 75%, he explained, you run them at 100%.
“You make a good point that once you invest in a facility, you don't run it at less than 100%. That's the same thing that we're hoping for at the at the processing facilities and slaughterhouses out there. Tyson doesn't build a pig plant and decide we're going to run it at 90%. They want to get it back to as much capacity as they possibly can out there,” Flory agreed.
These industries all hinge on each other. When you're running at nearly 100% capacity at each point along the way, hiccups are very difficult to deal with, Brown said.
What’s Ahead in the Pork Outlook?
Is this one and done with COVID-19? Brown said it’s easy to fall back into old ways, but hard to charge, especially in one year.
“I do think we’ll have a lot of discussion about who's bearing the risk on the production side of these kinds of pandemics,” Brown said. “Do we somehow need to change the way we structure the industry to deal with that?”
A lot of that risk initially, was felt by the hog producers out there, through lower prices, reduced market opportunities, and just no place to take a hog, Flory said. Ultimately, is it going to be felt by the taxpayer? he asked.
“It sure looks like taxpayers are footing the bill for least some of that,” Brown said. “I think in the case of pork, we'll never say pork producers were made whole by the kind of payments that are available. But I think your point that producers felt the brunt of the COVID-19 outbreak and how do we share that risk better in the future is something that I see us having at least a conversation about over the next year.”
How Will the Industry Build in Flexibility?
Five years from now, Flory asked, do you think the industry will try to build in some flexibility on the processing side and remove some of the vulnerabilities out there by increasing automation in the processing plants?
“Earlier this week, someone said, ‘We just shot people into space again, if we can do that, why can’t we figure out how to automate processing on hogs?’” Flory said.
Pre-COVID, the pork industry was already up against labor issues in trying to grow the industry and grow pork processing. Because of that, Brown thinks more automation is probable.
It’s all going to come down to relative cost, Brown said. What's the cost of that automation, relative to the labor that we've had? At some point, he believes the industry will reach that crossover where automation could be a much larger portion of pork processing.
“The only reason that we got as specialized as we've gotten in pork processing and in dairy processing is because it was the most efficient, most cost-effective way of doing it. I get that. But the risk has now been exposed. There's a cost to that risk and there's a payoff for eliminating some of that risk by building some flexibility,” Flory said.
This has been a phenomenal event that the industry is going through. Questions remain as we look forward, Brown added, if this is really in the rearview mirror or not yet.
“That, to me, has a lot to do with how seriously we’re going to take that risk going forward,” Brown said.
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