Longer Processing Plant Closures Creating Dire Situation for Pork

Pork producers across the country are feeling and seeing the impacts of COVID-19. Just last week, a Tyson pork processing plant in Iowa was forced to close for at least two weeks due to COVID-19 cases confirmed at the plant. That story becoming more common now, as over the weekend, the Smithfield pork processing plant in South Dakota made a similar announcement, closing indefinitely.

According to Farm Journal’s Pork, the South Dakota plant is one of the largest pork processing facilities in the U.S., providing nearly 130 million servings of food per week and employing 3,700 people. It’s also a major plant for pork producers, as more than 550 independent family farmers supply the plant.

The news sent shockwaves through the industry, leaving producers wondering how long the processing sector can make adjustments and accept hogs. All of this comes as more consumers are purchasing pork and other proteins from local grocers and butchers.

“There's been a massive shift away from food service and towards retail,” says Glynn Tonsor, economist for Kansas State University.

Tonsor says without food service, proteins like pork and beef are starting to pile up.

“Meat is a perishable good,” says Tonsor. “You can't just stack it like number two yellow corn.”

For pork, it’s not just the loss of food service, but now pork processing plants idling production.

“The longer this goes on, the worse it is,” says Tonsor. “In some sense, it's not as big of a deal if a number of plants for a two or three-day period. I think the industry can make day by day adjustments for a bit, but the duration is a real challenge.”

Randy Francois is an independent pork producer in Iowa. Even though he doesn’t supply directly to the Tyson plant that’s temporarily in Columbus Junction, Iowa, he sends pigs to the Tyson Plant in Waterloo, Iowa. He says the ripple effects of one plant closure are already happening.

“What that has done for Waterloo, Iowa, since it is a Tyson facility and the one in Columbus Junction is also at Tyson facility, is reducing loads,” says Francois. “Our buyer we've worked with real closely with, since we're scheduling our pigs two to three weeks at a time, our buyer has asked us to voluntarily reduce our loads to 85%.”

Francois says they are reducing loads now, but if the closures continue, the situation will become more severe. The situation and scenario is also something Tyson has explored.

Price reactions

Tonsor says with a 20% reduction in cattle processing capacity, prices could drop 26%. But he says the situation is more extreme for hogs, as it’s difficult to slow the growth of those animals.

“The story is actually more dire when we go over to hogs,” says Tonsor. “A decline of 20% on hog processing corresponds with a 36.4% decline in price of market hogs.”

Tonsor says the million dollar questions are how long the plant closures last and how much of the shutdowns are already priced into the market.

Even with prices plummeting, and some producers questioning where they’ll send their hogs, Tonsor says it’s not a 1998 scenario, yet.

“I actually think the ability and aggregate for the industry to absorb this is quite greater today than it was back in the 1990s,” says Tonsor. “That's not to say individual actors aren't going to go through the same experience.”

As producers like Francois try to navigate the turbulence and find answers in the midst of uncertainty, he’s trying to stay optimistic.

“It's a very unique time,” he says. “I think as the pork industry, we've been through a lot and I think we're used to volatility, maybe not this much volatility, but I hope that there's opportunity that comes about through this and I hope the industry is stronger.”

Francois is a reminder that the industry is full of resilience, a sentiment Tonsor also shares.

“I have full faith the aggregate pork supply chain will get through this, and the U.S. will remain a major pork producer, but there's going to be some shake up on individual entities through this process.”

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