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group of pigs Scott Olson

More competition among pork packing plants coming

Key going forward is increasing sales, particularly in pork export markets.

According to Iowa State University livestock economist Lee Schulz, first-half 2017 pork production will rise based on hogs that are already in the pipeline, with second-half output also likely topping the record levels of 2016.

“Additional packing plants coming on line in 2017 and 2018 will help ease capacity constraints,” Shulz said. “The additional capacity is good news for producers as more competition for their hogs will give producers a bit more leverage.”

Packers will want to hold market share, Shulz added. “To do so, they’ll need to get after hogs. Packers want to spread fixed costs over as many hogs as possible. Plus, no packer wishes to give up shelf space, foodservice or export markets. Those are all incentives to pay a higher price for hogs to secure a quantity level that captures operating efficiencies.”

Weekly slaughter topping 2.5 million hogs for several weeks last fall stressed capacity. Plus, total pork packer gross margins (cutout plus byproduct minus hog carcass) have been extraordinary, rivaled only by the pork packer gross margins of 2014, Schulz explained, adding, “No wonder new packing plants are under construction and the industry is in an all-hands-on-deck mode to get operational as soon as possible. The key going forward is whether packers will be able to grow sales, particularly to key export markets.”

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