As Pork Producers Persevere, Industry Could See Changes Post-COVID19

USFR-Pork Week FJR
The entire industry is trying to catchup with a backlog in processing, but Chad Leman and other producers are still doing everything they can to not euthanize any pigs.
( Mike Byers )

2020 has been a year filled with challenges. Replanting several fields of corn in Central Illinois was the norm this week for many farmers, including Chad Leman of Eureka, Ill. He says intense rains washed away pockets of fields, and replant was needed to fill in the gaps.

"We're out replanting corn today,” Leman told U.S. Farm Report on Wednesday. “We're out trying to plug in these thin areas the last few days, and I think everybody in central Illinois is replanting today.”

For Leman, having to replant corn was just another day of fielding the curveballs 2020 continues to throw.

“We have had our share of obstacles this spring, I guess we've built a lot of character,” said Leman with a smile on his face.

Leman raises row crops, but his primary focus is raising pigs. The pork side of his business is what’s been the most challenging this year.

“One of the plants we work with is at almost 100% capacity,” says Leman. “The other plant is still struggling at 70% capacity.

When U.S. Farm Report first visited Leman in April, a portion of the pork plants he supplies were shut down. And now with the ripple effects of another plant shutting down for a couple days earlier this week, he’s still fielding those curveballs as they come.

“While I’d like to say that everything's back to normal and going great, we are still not back to just normal shipping levels, let alone catching up,” he says.

The entire industry is trying to catchup with a backlog in processing, but Leman and other producers are still doing everything they can to not euthanize any pigs.

“We've really been creative on keeping weight off pigs,” says Leman. “The big concern was can we keep the pigs from getting too heavy and can we make enough room in barns to be able to take weaned pigs in.

He says those weaned pigs are now being put in barns with larger pigs, creating a new set of challenges.

“We're finding a happy medium on ventilation to try to keep a 15-pound pig comfortable and a 300-pound pig comfortable in the same building,” he says. “So far, we've been able to make that happen.”

The Push to Process

Leman is finding short-term solutions as his long-term plan hinges on one very important aspect of the supply chain.

“We need to we need the plants to be added 120% of capacity or 130% to begin to work through the backlog of animals,” he says. “What is hard for people to understand is just because the plants are running normally, or close to normal, doesn't fix the problem. We've bought time, which we needed to do.”

Leman and other producers bought time, as processing plants work to get production back online.

“At the beginning of June, we were running at about 18% or so idle,” says Bill Even, CEO of National Pork Board (NPB).  “That's a vast improvement where we were nearly 45% of our capacity was idle in the early part of May.

Even knows the return to processing is a step in the right direction, but cautions it’s not the only fix at this point.

“I think that's what got U.S. got producers very concerned as it leads to the backlog of hogs in the countryside,” he adds.

The issue is now drawing attention to the need to chew through a mounting number of backlogged animals.  

“We had a million pigs that were ready for market, didn't have a home to go to,” says Neil Dierks, CEO of National Pork Producers Council.

Dierks says while trying to work through that many hogs may be a challenge, seasonality could be on the pork industry’s side.

“Processors have every motivation to try to maximize the capacity,” says Dierks. “100% capacity is anybody's question. There's a lot of hopes on it. But we may have equilibrium at this time of year, because the biological nature of the business is we see the fewest number of animals come to market in the summer than we do other times of the year.”

Yet, Dierks knows uncertainty in the weeks and months ahead could be the biggest threat for pork producers today.

“It manifests itself in lots of ways,” he says. “This issue about when can we get to equilibrium on our packing capacity? How long-lived is that equilibrium? What happens next fall with coronavirus in the general population, let alone seeing additional spikes as things open up? So, that uncertainty is the big issue. “

Pinched Profits

Uncertainty is morphing into another issue on farms across the country.

“I'd say that the greatest threat to the pork industry right now is profitability,” adds Even.

As plants slowly pick up the processing pace, many in the industry know getting back to 100% packing capacity anytime soon will be a stretch.

“A lot of that will depend on the confidence of the workers themselves and the work that we do in the industry to thank them for their efforts,” says Even.

As pork producers like Leman try to persevere, profitability is a big question, as the markets look bleak.  

“We're focused on market opportunities out there,” says Leman. “There aren't really great opportunities out there right now in terms of futures and options.”

CME futures now sit below producers’ cost of production through spring of 2021.

“According to the traders in that market, we're not going to make any money at all until next April,” says Dermot Hayes, an economist with Iowa State University.

He says 2020 was poised to be a year of expansion, but due to the virus, it quickly turned into a year of contraction.

“If it wasn't for the virus, we'd be in expansion mode and we'd be getting strong signals to expand,” says Hayes.

He adds the strongest signal has been with China.

“I think exports are up 300%,” says Hayes. “China is buying at least 10%, and perhaps as much as 12%, of all the pork produced in the country right now. So, you can imagine if we had good domestic demand, what it would be like to have a new customer to come in by 10% more productive. It would have been fantastic and we would have continued to expand.”

As COVID-19 threw pork production into disarray, some started comparing it to the 1990s, but Even says it’s not the 1990s: the situation is worse.   

“This current COVID crisis is even worse than what we had in  1998, because that year, at least the packing plants were operating,” says Even.

Packing plants became a major pain point during the crisis, and as the major bottleneck was revealed, some started to question if the U.S. pork supply chain was too efficient.

“I think there'll be a lot of thinking about this in the, you know, in the months and years to come,” says Jayson Lusk, an economist with Purdue University.

Changes Post-COVID19

Lusk says as the industry searches for answers, the processing picture could change in the years ahead.

Is it worth giving up some economies of scale to perhaps have a little more robustness in the system?” asks Lusk.  “Maybe a smaller number of more geographically distributed packing plants, for example.  I suspect even the companies that own those plants may be thinking that, too.”

A possible change not only in size, but in labor.

One thing that this crisis has revealed is that we are most vulnerable where the labor is, particularly because the disease is spreading from worker to worker,” says Lusk. “There'll be bigger pushes for automation and ways we could think about dealing with some early labor shortages that happen in these kinds of pandemics.”

The push to reduce reliance on labor has been a priority in plants for years, however the speed of it may quickly change.  

We're seeing slow progress every time I visit a plant,” says Hayes. “I'm always impressed by pork belly slicing machines that are out there now. We'll continue to see it.”

As the push continues, Hayes knows it won’t happen overnight.

It's going to be slow progress, but we're seeing it already,” adds Hayes. “I don't expect that to speed up because there's a natural problem with trying to develop these highly sophisticated tools. And they just take time.”

Change could be cultivated in not only how product is produced, but how it’s purchased.  

We may have grocery stores that look a little different,” says Lusk. “A decade from now those stores could more focused on meat and fresh fruits and vegetables. More of our packaged products coming direct to our homes. These things tend to be pretty gradual, but the virus is shaking things up in a hurry and we may get those changes faster than we anticipated.”

A possible shake up with consumers, but one the pork industry wants to make sure doesn’t come with a shakeup in confidence.

It gives our pork producers an opportunity to really tell their story while the American public is paying attention and quite frankly, is pretty interested in just the basics,” says Even. “They’re interested in how they're going to get nutritious protein to their families.”

The Silver Lining

As the entire pork industry reflects on how COVID continues to impact producers, Dierks says he’s confident in one thing.

We will make it through this,” he says. “It's important we not be afraid to ask for help if we need it.”

As producers like Leman try to look past tomorrow, the silver lining of a major catastrophe helping Leman push through and persevere.

It's so hard to see three months, six months down the road for me,” says the Illinois pork producer. “I'm grateful that even though these are not times I’d want to go through again, it has given those of us who raise pigs the opportunity to share with people how we do it. It's given us an opportunity to show how we take care of our animals, how we put the comfort and the well-being of our pigs as a top priority.”

 

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