The top 40 sow owners in the U.S. will each lose more than $18 million due to the COVID-19 pandemic, projects Dermot Hayes, an economist with Iowa State University.
On Wednesday, Hayes joined host Chip Flory on “AgriTalk” to discuss USDA’s COVID-19 relief package and the pork market outlook.
The relief package includes $3 billion in planned agricultural product purchases and $1.6 billion in direct payments to hog farmers, including payment limitations of $125,000 per commodity and $250,000 per individual.
“It’s a joke. If you take all their hogs to market and then look at the reduction and the losses [the top 40 sow owners are] going to experience on those market hogs, they're going to lose more than $18 million, every single one of them will lose more than $18 million because of this,” Hayes says. “They own two thirds of the hogs, so for them to get $125,000, it's almost an insult. It's just not going to help.”
Earlier this year, Hayes and Steve Meyer, a pork industry economist with Kerns & Associates, estimated that hog farmers will lose nearly $37 per hog, or almost $5 billion collectively, for each hog marketed for the rest of the year.
“We took the change in the futures prices from March 10 to April 10 for all hogs that will be processed for the rest of the year, and multiplied that negative number by the number of hogs we expect to harvest each month and I came up with a number that was a damage estimate that was almost $5 billion,” he explained to Flory. “It got a little bit worse after we did that and now the market is coming back a little bit especially for the deferred contracts.”
The USDA program to purchase U.S. pork will not solve the problem the industry faces, but it’s a step in the right direction, Hayes said.
“I had done some calculations and just to replace half of the [lost] foodservice demand would have required a pork purchase of about $300 million a month. A purchase plan of $100 million that includes chicken and beef and turkey is not going to cut it,” he added.
The industry will be sitting on a lot of big packages of pork until the economy gets going again and food service is back up and running, Hayes says. He says it’s not a complete disaster because pork can be stored. However, storage space is limited.
The temporary closures of packing plants, reduced line speeds and employee absenteeism is causing a backup of hogs that won’t be possible to overcome. Getting plants back online after temporary closures is critical, Flory said.
“We need to work on the safety of those plants,” Hayes said. “We need to get the testing done and figure out who's sick and get them home, and we need to figure out who has antibodies and get them to work.”
In Iowa, Hayes said the governor will immediately dispatch 1,000 tests to any plant that requests it and that's been going on.
“The good news is that testing is starting up. The bad news is we're getting a lot of positives,” Hayes said. “So that's kind of scaring people. But in the end, she's doing the right thing and I can see light at the end of the tunnel because of that response.”
What’s ahead in the markets?
“We've got to ride this wave of plant closures and plant slowdowns and try to figure out where the market might be going next,” Flory said. “What has to happen to get us on that path to recovery?”
In addition to the labor situation in the plants that needs resolved, the retailers are also experiencing some of the same issues, Hayes explained. They have absenteeism and inefficiencies, too.
“It takes time, it just takes a while to get things back up and running. And until we have massive amounts of testing, we're not going to get there. So maybe we start back up in May, but it’s going to take months to get back to full operation,” Hayes said.
He also said the U.S. needs to get exports back up and running. He cited Mexico’s challenges and the importance of finding a place to send the hams that would have typically gone to that market.
“There's a huge market in China that we're leaving untapped and somehow we have to get back into it and fully take advantage of that,” he says.
The challenge? Tariffs.
“We still have metal duties on Chinese products, even though we have a Phase One deal. And guess what? They still have duties on our pork. So, hog prices in Europe are far higher than here because European farmers are shipping millions of tons into China. We have to discount our product to get it in by the full 25% duty that we have to pay, and the Europeans do not,” Hayes said.
He says the tariffs are mind-boggling and the opportunity in China is phenomenal.
“What is really frustrating is that the pork we send to China has the bones in it – they have cheap labor to take bones out,” Hayes said. “You can run a packing plant far more efficiently if this the pork is destined for China. And that's exactly what we need right now. Getting into China would benefit every single producer and every single packer. It's a win-win.”
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