Neither the new Seaboard Triumph Foods (STF) pork processing plant in Sioux City, Iowa, nor the Clemens Food Group (CFG) plant in Coldwater, Mich., are running at full one-shift capabilities, and plans for second shift have been put on hold, according to Steve Meyer, economist at Kerns & Associates.
He told Feedstuffs that the plants are still trying to ramp up their first shifts but are facing labor challenges.
Meyer said STF recently announced that it wouldn’t be starting its second shift until after the first of the year 2019. “We’ve heard some rumbling that they may try to do that in October, but we have our doubts of whether they can come up with enough workers to get that done.”
In a statement, STF officials told Feedstuffs, “The first shift of the Seaboard Triumph Foods Sioux City plant is fully operational, and we are hiring and training for second shift positions to meet the plant’s operational goals.”
As for what these delays mean for the hog sector, Meyer said there is sufficient capacity for the summer and into the fall for the number of hogs currently expected. A problem, however, is that there were hogs that were scheduled to go on the STF second-shift.
“Those hogs have got to find a home. We’ll have enough capacity for them, but there are still going to be a few more hogs out there on the spot market that we think are going to put some pressure on prices this fall,” he explained. “We’re concerned about Q4 2018 prices.”
Meyer estimates prices may fall to the $50s/cwt. on a national net price across all purchase methods basis.
Labor will continue to be a challenge in the future. “We’ve said this was coming for a long time. I think we have a pretty severe labor problem, especially if you start trying to ramp up the second shift at Sioux City and the Prestage plant at the first of the year.”
In regards to the CFG Coldwater plant, Meyer said they haven’t had plans for a second shift for a while.
“I think they are up to 10,000 or a little better, on a daily basis. They can kill 12,000, but I don’t think they’re going to get there for a little while. They had not had any plans to add a second shift immediately,” he said.
During the largest processing weeks last fall, the U.S. was processing 2.575 million hogs on a weekly basis. This fall, Meyer said approximately 2.7 million hogs will need to be processed at peak. With the capacity available right now, the U.S. is able to process 2.632 million.
“We’re going to go above that for three weeks this fall,” he said, adding that this is not unusual and that a few more plants can operate on Saturday to handle the peak time. “I’m not concerned about being at or above the number for three weeks. We’ll have one week at 2.7 million.”
Lower prices expected
Meyer said capacity will not be behind the potentially lower prices, but rather supply.
“There’s too much pork,” he said. “It’s just a supply issue. I don’t think capacity is going to contribute to that this fall.”
Both domestic and export demand will be crucial, but Meyer said that so far it has been very good. “The demand side has held up its side of the deal in spite of all of the trade problems.”
However, he said last week’s development for potential tariffs from Mexico could “put a wrench in the works.”
Through March, exports have been 5.8% higher than last year. “That’s been excellent.”
In terms of domestic demand, Meyer said real per capita expenditures, which is a measure of demand, have been up 2.4%.
“That’s a positive for the year. We grew from a year ago, so I don’t think the demand side has been a problem. The macro factors of the economy still remain good. Demand is going to be crucial, but so far, it’s held up.”
Still, the trade issues may have some impact by fall, but we just have to see how that develops, Meyer said.
“The big issue this year is supply.”
Meyer said it looks like costs are going to be in the mid-to-low $60s. “That helps producers, no question. But if you get prices well into the $50s, you’re still going to have some substantial losses.”
However, Meyer said a negative number for profitability is not expected in 2018.
“We think profits are going to be good enough in the summer to make up for the losses. But, it’s not going to be a banner year by any stretch.”
If the estimated lower prices this fall do come to fruition, producers could see anywhere from $12 to $15 per head losses. This would result in an approximately $4.53 per head profit per year.
“We’ve had two months of losses here in the spring and then those losses in the fall would put us at just enough breakeven for the year,” Meyer said.