Impacts of COVID-19 on pig production and pork processing
The COVID-19 pandemic will have short- and long-term impacts on the pork industry, both in production and processing. Iowa State University agricultural economist Dermot Hayes weighs in on the implications, starting with changes to the packing industry.
1. More robotics. This trend has already started in new plants like Prestage Foods of Iowa, and that technology will accelerate.
2. Slower line speeds. The packing industry was designed for maximum efficiency and low cost, says Hayes. “We didn’t develop it for resiliency, and it has broken down. In the new world, we are going to have more labor at some points in the chain, and lower line speeds.”
3. Better labeling of product. There were a lot of packages of bacon headed for restaurants with a label saying, “Not for retail sale,” says Hayes. “We will find a way to get rid of permanent labels.”
4. More flexibility. For example, the lines that pack bacon will more easily convert from 15-pound packs to 3-pound packs. “We are going to build flexibility into the system both with extra labor and with more flexible machines,” says Hayes. “It will cost slightly more. All we have done up to now is focus on cost. We never focused on flexibility.”
5. More split carcasses heading to export. One way to get rid of a back-up of market-ready hogs could be to kill them in the plants, split the carcasses, and ship those to China, says Hayes. The kill floor uses a limited number of workers. “You could close the boning hall and rotate workers from there to do less skillful work on the kill line,” says Hayes.
Here’s what is changing on the pig production side in the short term.
1. Devastation for producers selling based on the negotiated price. If you are selling on the carcass value, you might be okay, because meat is more expensive now that plants are closing, says Hayes. About 30% of producer-owned hogs are sold on the negotiated price, and the bottom has fallen out of that market.
2. Short-term crowding in barns. When pigs are market ready, they are pretty much shoulder to shoulder in the pens, says Hayes, but in wean-to-finish barns, there is plenty of space the first few weeks. “You could double or triple density for a couple of weeks until those pigs start to grow.”
3. Euthanizing weaned pigs. Once producers have taken all the steps they can to pack in those new feeder pigs coming into the system, they have to kill the surplus feeder pigs, says Hayes. “People are struggling right now to last as long as possible until plants reopen.”
4. Fewer capacity problems in the fall. October hog futures are up, says Hayes. That means we are not going to be running into capacity problems this fall as we had expected, because we are bringing those feeder pigs to market (euthanizing them) right now.
Long-term impacts from COVID-19 on the structure of the production side
1. Producers out of business. If you assume production of 26 pigs/sow/year and a loss of $30 a pig, a 25,000-sow producer will incur damages of $18 million this year, says Hayes. “Giving them $125,000 in a year that they lost $18 million is a joke.”
2. More consolidation. “There is money outside of agriculture that could buy barns for pennies on the dime, so I think we will see a whole new round of consolidation and movement to even bigger companies,” says Hayes.
3. Independents are most at risk. “With the closure of several plants, the remaining plants will earn good money on exports and in retail,” says Hayes. It’s the independent specialized sow owners whose only source of income is pigs, with contracts based on the negotiated price, that are most at risk.
4. More Asian companies owning U.S. hog farms. Smithfield did it and it worked out, says Hayes. This pandemic could accelerate the trend. “I think the Chinese have decided that their own country is too crowded with pigs, so they are going to buy production systems in countries that have more space. I bet U.S. producers are getting calls already.” Japan did something similar, he says. “The Japanese wanted to control all aspects of the food delivery system once they decided to become dependent on imports.” Japanese firms already invested in grain transportation in the U.S. and smaller pork packing plants in the East, and production operations in Canada, he says. “If you are going to depend on importing food you want to have your own workers on all points along the line so you don’t get strikes or transportation bottlenecks.”
5. More contact tracing of pigs and workers. Some large producers already have computer programs that can tell where every pig has been and who it has been in contact with, whether it was a worker or another pig. These programs were designed in anticipation of the U.S. breaking with a foreign animal disease such as African swine fever, says Hayes. Ironically, the devastating market situation in the negotiated hog market right now is exactly what the industry predicted for that disease outbreak. “The price change in the negotiated market that we had projected if we broke with African swine fever is precisely what they are facing right now. Hogs that were worth $150 are now worth less than $60.”