Large plans ahead for the U.S. pork industry

I would be remiss if I didn’t mention that October is National Pork Month. October was selected since this was the time of year when hogs were traditionally marketed. In the spirit of National Pork month I have a few pork facts for you to ponder:

  • According to the latest Census of Agriculture data there are 63,246 hog farms in the United States.
  • 98% of total pig farms are family owned.
  • U.S. hog farmers produce 23 billion pounds of pork annually
  • U.S. hog farmers raise 113 million hogs annually

The U.S. pork industry faces some big plans in the near future.  

Plant capacity

The announcement of two new plants in 2015 was definitely headline makers. The joint venture between Seaboard and Triumph Foods announced they will build a 3-million head a year plant in Sioux City, Iowa. The Clemens Food Group also announced the Coldwater, Mich., plant will process 2 million head per year.

Looking back, to Paragon Economics data, from 1993 through 2013 the United States lost 135,000 head per day of packing capacity. Much of this capacity was absorbed by the first Triumph plant, double shifting others and improved operational efficiencies. But with the recent round of expansion we could have capacity issues during the fourth quarter of 2016 as both new plants will not be in production until the end of 2017.

What we need to avoid is history repeating itself with capacity issues. In 2008 we did process 116,452,000 head. We have approximately 452,000 head of capacity daily according to Paragon Economics analysis. We are currently pushing 436,000 head a today which is only a 3% cushion over capacity. Based on the September Hogs and Pigs report, farrowing intentions would indicate little growth. However, if we continue to see historic productivity gains of 1.5 to 2%, we will be near our packing capacity by the fourth quarter of 2016.

Considering the capacity we lost as an industry, the new plants are needed to improve both capacity and improve efficiencies that come with a new plant. We need to watch the progress of these two plants closely as we will need the additional capacity by the fall of 2017 barring any production difficulties.

Exports and TPP

Oct. 5 marked the end of trade negotiations for the Trans-Pacific Partnership free trade agreement. While the details of the agreement have not been publicized, there have been some details released. The most significant would be both the tariffs and gate price with Japan on fresh and frozen pork. Although it appears the gate price will not be reduced to zero, it will be phased down significantly over the next 10 years with the majority of the reduction implemented in year 1. The tariffs on processed pork will be phased out to zero over a six-year period.

The other potential growth market will be Vietnam. It has been reported that all tariffs on U.S. pork will be phased out over 10 years.

Although the complete details of this agreement are not known, this agreement has the opportunity to be the most significant free trade agreement ever for U.S. pork producers. Dermott Hayes, from Iowa State University, estimates that TPP could exponentially increase U.S. pork exports over time and help create more than 10,000 U.S. jobs. The United States now exports more pork to the 20 nations with which we have FTAs, than to the rest of the world combined. The illustration below shows the impact that the North American Free Trade Agreement had on the U.S. pork industry.

Country of origin labeling

The U.S. country-of-origin labeling law has been reviewed by the World Trade Organization on four occasions and is in violation of the WTO rules. Both Canada and Mexico have requested retaliatory tariffs be place on U.S. products totaling just over $3 billion.

Unless both houses of Congress repeal this rule and replace it with a voluntary rule, both Canada and Mexico will be able to take the retaliatory measures against the United States. Canada and Mexico are the second and third largest markets for U.S. pork. If they do retaliate, this would be devastating to those markets and cause U.S. pork producers economic harm.

Malakowsky has more than 17 years of experience with AgStar Financial Services. For more insights from Malakowsky and the AgStar swine team, including their weekly video Hog Blog, visit AgStar.com. If you’d like more information on AgStar’s Margin Manager Tool check it out at AgStar.com/MarginManager

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