August 6, 2007

 

Foreseen record hog supply to test US slaughter capacity this fall

 

Expected record-large hog supplies could challenge packers' ability to process the animals for at least a few weeks later this year, with no increases in slaughtering capacity seen likely soon.

 

There has been considerable speculation among some analysts and livestock market managers that the John Morrell pork plant in Sioux City, Iowa, would add back the second-shift operation some time this fall due to the seasonal trend of larger supply.

 

However, Keira Ullrich, a spokeswoman for Smithfield Foods (SFD), which owns Morrell, told Dow Jones Newswires that "the second shift will not be added back at this time." Smithfield Foods is the nation's largest hog producer and pork processor.

 

Back in February, the company cited poor market conditions as the reason for dropping the night-shift operation. In a February 8 release, the firm said with the shutdown of the night shift, the plant would process approximately 7,000 hogs a day.

 

Industry analysts said at that time that the plant's daily capacity prior to the layoff of the second shift was about 14,500 head, and concluded that each shift could process approximately 7,000 head.

 

Joseph Sebring, president of John Morrell, said at the time, "We hope to resume second-shift operations when market conditions become more favourable."

 

Slaughter-ready hog supplies generally begin a seasonal expansion by mid- to late August, and the growth in numbers extends into the fall and early winter. Because of this historic trend, there was increased speculation in recent days about the possibility that the Sioux City plant might soon begin hiring workers and add on the night shift.

 

Analysts and market managers say that even if the night shift isn't resumed, the plant should be able to handle up to approximately 9,000 head per day on one shift by operating extended hours.

 

This would be helpful in moving through the big supplies expected for this fall but not as much as if the plant were double shifted, said a veteran livestock buyer in the western corn belt who requested anonymity.

 

Rich Nelson, analyst with Allendale Inc. in McHenry, Ill., said "there is no question" that fourth-quarter hog slaughter will set a new record. He predicted supplies of slaughter-ready hogs could be big enough to present problems for the markets for a period of about two weeks. These could occur consecutively or be separated by a week or two in between. Nelson said during these weeks of the largest supplies, cash prices could drop by around US$2 per hundredweight further than they would otherwise.

 

The closure this spring of Sara Lee's Bryan Foods pork plant in West Point, Miss. further trimmed the daily slaughter capacity to its current status of approximately 415,000 to 417,000 head, according to analysts and agricultural economists.

 

US Department of Agriculture data show the largest daily figure since the closure of the Bryan Foods plant has been 412,000 head on April 2. However, supplies of slaughter-ready hogs then were not as large as they will be this fall, and packers will try to push as many animals through their plants as possible.

 

Bob Brown, private analyst in Edmond, Oklahoma predicts weekly slaughters during the fourth quarter may at times be as large as 2.3 million head.

 

Some analysts and livestock market pundits also expect the October-December slaughter total to be from 3 to 4 percent above a year ago amid wider availability of vaccines for porcine circovirus associated disease. Better control that disease will make more hogs available this fall and winter, they said.

 

To achieve a 2.3 million head weekly slaughter without adding to the current capacity, the industry would have to run at maximum level during the week then process approximately 215,000 head on Saturday. Wider operating margins will be needed to encourage packers to operate on overtime hours, which along with the big supplies mean producers could be looking at significantly lower prices by then, analysts said.

 

On the other hand, a new pork plant is in the works for the Midwest but construction hasn't yet begun. Triumph Foods, based in St. Joseph, Missouri, intends to build a new plant in East Moline, Illinois. The company had planned to break ground for the new facility earlier this year but that has been delayed until early next year.

 

Patt Lilly, chief administrative officer with Triumph Foods told Dow Jones Newswires the delay in start-up of construction of the new plant has been "driven by management's focus on getting the plant started in St. Joseph. We are currently in the process of implementing several capital projects and feel that once we get these underway, we will be in a position to give focus to the East Moline project. We continue to work on preliminary aspects of the project."

 

Lilly said based on the company's plans to begin construction next spring, the earliest the completion could occur would be mid-2009. The company earlier announced that the East Moline facility would be able to eventually process about 16,000 head a day once both shifts are operating.