Pork Producers Face Intense Uncertainty, Making Last Resort Decisions

09:12AM May 04, 2020
Chad Leman
Pork producers like Chad Leman are wading through a period of intense uncertainty. The Eureka, Ill., farmer says the impact of COVID-19 on his farm and the entire industry is unprecedented.
( Mike Byers )

Pork producers like Chad Leman are wading through a period of intense uncertainty. The Eureka, Ill., farmer says the impact of COVID-19 on his farm and the entire industry is unprecedented.

“I’ve never seen these kinds of times before,” says Leman.

He says a time that stands out in most people’s minds was in the late 1990s, but he thinks 2020 could be worse.

“1998 is probably the year that stands out in most pork producers minds because that’s when hog prices got down to $8 and you call your neighbors to see if they wanted to come and pick out pigs. But since then, we've never seen prices at that level, and we've certainly never been in a situation where we don't have a home for pigs.”

Leman and other producers are taking it day by day, doing what they can to survive as pork producers.

“We learned that we have to take a day at a time,” he says, while standing on his farm. “You could really cause yourself a lot of worry and anxiety thinking about next week.”

The Eye of the Hurricane

As COVID-19 consumes the entire pork industry, National Pork Producers Council (NPPC) says it’s a problem engulfing producers from coast to coast.

“We're in the eye of a hurricane right now,” says Nick Giordano, NPPC vice president and counsel, global government affairs. “It's an incredible strain and it's really unprecedented. This week we've had about 40% of our pork packing plant capacity out and it’s been backing up hogs, the value of hogs dropped to virtually nothing, and now hogs are being euthanized.”

The heavy financial and emotional weight is growing as more packing plants slowed or shut down last week.

“The primary Tyson plant that we ship to was shut down for over two weeks and is just now beginning to try to ramp back up,” says Leman.

National Pork Checkoff put together a map showing the status of pork processing plants across the country. Green means the plants are running at full capacity, yellow means those locations are slowed, and red indicates the plants are closed.

“It's certainly under some very severe stress at the moment,” says Purdue University agricultural economist Jayson Lusk when he was asked about pork processing in the food chain. “This next week or two are going to be really touch and go.”

Lusk says as more plants are unable to process pigs, it shows the vulnerabilities in the food chain.

“I think it does reveal just how much of a bottleneck there is in the processing sector,” says Lusk. “In good times, these large packing plants serve us well. They efficiently process animals, provide affordable meat to food consumers. But when you have 60% of all hogs going through the top 15 plants or 60% of all cattle going to the top 10 plants, that gets to be a real choke point when you start getting one, two, three or four of these shut down, and that's what we're sort of seeing now.”

The bottleneck in processing meat across the country is becoming critical as major fast-food chains like McDonald’s say they are going to ration the amount of protein sent to chains across the country.

 “We have a monumental challenge of getting hogs off the farm and into the packing plants at the moment,” says Lee Schulz, Iowa State University agricultural economist.  “Now, it's not the only bottleneck that that is occurring, but it's really the bottleneck that is having ramifications up and down the supply chain.”

Fixing the Food Chain Bottleneck

The supply chain disruption even grabbed the attention of President Trump. He announced last week an executive order to keep packing plants open.

“It's absolutely a step in the right direction, because job No. 1 has been to cease to stop the plants from going down and to have an orderly process with more coordination between the federal government, the state and local governments,” says Giordano.

A step in the right direction according to NPPC, but one that Schulz says doesn’t mean processing capacity will return to 100% overnight.

“We can't necessarily make those workers work,” says the Iowa State economist. “I think the more attention, the more resources that we can get to help resolve the situation in the form of safety measures, in the form of testing, that will allow us to potentially move to getting these packing plants either back on line or getting up to capacity level that allows us to move more hogs through this.”

Smithfield Foods posted pictures on social media last week showing increased safety measures in place, including adding plexiglass in between workers.

NPPC says while plants are able to open up following updated Centers of Disease Control and OSHA guidelines, the organization acknowledges packing capacity won’t recover immediately.

“I think that the plants have made it clear that health and safety come first,” says Giordano. “We're not going to see all these plants just come back on stream. They're going to come back on stream when the plants and when people are confident that they're ready to come back on stream.”

Is the Food Chain Breaking?

As the packing portion of the food chain becomes severely strained, Tyson Foods’ Board Chairman took to the New York Times last week. The company placed a full-page ad claiming the food chain is breaking. However, some economists disagree.

“I have a little different view,” says Lusk. “I think by and large, throughout this crisis, the food supply chain has responded remarkably well. Yes, we had a stocking out period for some grocery store shelves that were empty, but by and large, food was available. It might have been a different variety or different brand than you're accustomed to buying. But I think the food system responded remarkably well to a completely unexpected and unprecedented event. That doesn't mean we don't have challenges, and we certainly have some very serious challenges coming up in the meat sector, but that doesn't mean the entire system is broken.”

Margins Fall

Broken or not, the inability to process as much beef and pork at major packing plants is becoming severe. That’s as Leman and other pork producers watch margins fall.

The latest Sterling Profit Tracker showed producers’ margins took another nosedive las week, falling to $50 per head losses. That’s while packer margins netted $67, an increase of $36 from the previous week.

“We're not even as concerned about the low pork prices as we are about just being able to have a home for pigs,” says Leman.

The issue of not only deteriorating pork prices for producers, but also a loss of demand from packing plants, is an issue NPPC says is being addressed at the highest level.

“This is an unmitigated disaster,” says Giordano. “They need cash. So, we're working to get them payments without limitation.”

The immediate need is processing. As market-ready pigs are left without a home, some producers are exhausting all options to stay afloat.

“You can try to put more animals in the barn, but frankly, a lot of producers don't want to do that because that has some animal welfare concerns,” says Lusk. “There are stocking density issues and then there are known animal disease concerns when you move animals through as a group to keep them together. So, there just aren't really good options for producers in this situation.”

Thinking Outside the Box

A situation that are prompting some producers to think outside the box, even finding luck and interest on social media.

“It's been phenomenal,” says Brian Melhalf who posted pigs for sale on Facebook a couple of weeks ago. That one post went viral.

“I had over 500 phone calls the first day,” he says.

The post even drew interest from Wyoming, coming as a shock to Melhalf.

“They have butcher shops that are converting over from butchering cattle and buffalo over to killing pigs now to try and help to alleviate some of the stress.”

While selling pigs locally or through social media is working for some, it’s not even making a dent in the overall loss of demand from major packing plant shutdowns and slowdowns.

“The two packing plants we have in Indiana that are closed down now, they process more than 15,000 pigs every single working day,” says Lusk “So, even if you have a small packing plant that can do 150 a day, that plant has to run for 100 days to equal one day of one of these large packing plants. It's just not like you can just run these animals through another packing plant.”

‘Last Resort’ Decisions

With nowhere to go, some producers are exhausting all options, now putting down animals. Congressman Colin Peterson (D-Minn.) spoke about the dire situation earlier this week. The House Agriculture Committee Chairman said 160,000 hogs need to be euthanized per day at this point, as declined packing plant capacity causes massive backups. Leman says euthanizing animals is something no producer wants to do.

“They're too big and there's no place to go with them,” says Leman. “So, that's the last resort and sort of what we've held out for as the ‘worst case scenario.’ But we're getting there.”

Processing Plants Post-COVID-19

Pork producers like Leman are just trying to get through today, but it’s tomorrow that could look a bit different, all the way form the farm to the packing plants.

“There's probably going to be an interest in still having large plants, but maybe more middle- or medium-sized plants,” says Lusk. “We may even see that from some of the large packers that are trying to make sure that if they have one plant shut down, it's not 4% of processing capacity, it's 1% or 2%. We may see more of that kind of thing.”

The change could not only come in processing, but COVID-19 could have a long tail, even having an impact on purchasing.

“It’s opened our eyes to how much we depend on farmers, on a well-functioning food supply chain,” says Lusk. “Also, on those processors in the middle in how much we count on the fact that we're well-fed. We've just taken food security for granted. And hopefully people will come away from this with a greater appreciation of just how intricate and how much work goes into supplying a bountiful and secure supply of food.”

Fighting for the Future

For Leman, he’s not just thinking about how the pork industry could change. He knows the decisions he makes today could define his business’ survival.

“I hope and pray to be in this business,” says Leman. “We've got employees that count on us, and we want to continue to grow.”

As the situation lingers, some pork producers may be forced out of business. That’s why Leman is searching for the strength to do what’s right for his family and his farm.

“Speaking for myself, still being fairly young, having the next generation coming along, we want to be in this business,” he says. “So, we'll fight. We'll fight pretty hard to stick around.”