When it comes to processing capacity in the United States, it’s a tale of two cities.
While capacity levels in the hog industry will be tested by large number of pigs going through the system this fall, the decrease in cattle numbers will impact current as well as future processing plans.
Steve Meyer, lead economist for Partners in Production Agriculture, says on the hog side, the current capacity should be sufficient to handle the heavy load of hogs coming down the chain this fall and winter. However, Meyer says any future expansion has been put on hold as the industry continues to see red ink.
“The latest Hogs and Pigs report showed March-May hogs up 0.8%, and I think that’s too low,” Meyer says “I think we’re going to be right at the 2.615 million weekly slaughter number, and our current capacity should be able to handle that.”
He says the hog industry will not see any expansion of numbers, adding that the industry is currently losing more money than it did in 1988. Meyer says softening demand to pre-2021 levels and costs north of $90 per hundredweight for the average producer will result in a significant reduction in the breeding herd over the next year and a half.
Meyer says other issues such as labor shortages and the future enactment of Proposition 12 in California will also negatively affect the hog industry.
Over the past few years, some cattle capacity has been added via smaller processing operations, says Lee Schulz, Extension livestock marketing economist with Iowa State University. He says according to USDA numbers released in April, figures from 2022 showed a lot of small and medium plants have been added to the system, including 14 in 2022.
Schulz says most of those plants operate at a capacity of 1 to 999 animals processed annually. That means there is more than adequate capacity for current cattle processing needs, he says.
Falling cattle numbers will also impact any current or future plans for expansion, Schulz says. Currently, there are several newer cattle processing facilities in the works, including plans for a plant in western Iowa.
“Some of these plants have canceled plans while others have changed their timeline,” Schulz says. “At the moment our capacity is fairly fixed. These additions will be coming down the pipeline in the next couple of years or so.”
He says packer profit margins have been nonexistent as processors have been dealing with higher production costs as well. That includes labor issues among other things, Schulz says.
He says some plants have had the ability to increase line speed, which has helped the plants move more animals through the system.
Meyer says some of the newer beef processing plants will be coming online at a time of lower inventory numbers, adding that causes him some concern.
“They are going to be ready to go about the same time we start seeing even lower cattle numbers,” Meyer says. “I’m afraid there will not be enough cattle for those new plants. With the 10-year cattle cycle, it’s very tough to get your timing just right when it comes to expansion.”
