Thought on slaughter capacity in coming years

In a conversation with a writer this week I was asked a variety of questions about this falls markets and the opening of new slaughter plants next summer. I’ve also had conversations this week with equipment suppliers and producers that shed some light on producer intentions.

Right now, producers are adopting the mind-set that ‘cash is king’. Equipment suppliers are telling me sales aren’t as good as they expected due to order cancellations and delays. I’m also aware of some sow unit construction being deferred until next year because of expected cash flow constrictions this fall.

However, long term I’m still hearing of planned expansion in the sow herd with more construction planned for 2016. Will it be more than what was added this year – most likely yes in my opinion.

Why the on-going long-term optimism? Feed grain price projections for the coming year(s) and the expectation of increased packer competition for slaughter pigs as the new packing plants come on-line beginning next summer.

Let’s start with increased packer competition and slaughter animal needs. The new Triumph plant at Sioux City will slaughter pigs owned by its owners (Seaboard, New Fashion Pork, Christensen Farms, Hanor, etc). If we assume 10,000 pigs/day, 270 kill days and 21 pigs sold per inventoried female per year from these systems, this takes the pigs from approximately 128,000 sows. As this plant ramps towards a second slaughter shift, this means the addition of 128,000 sows by someone.

The same thought process goes for the proposed Prestage plant in Wright County, Iowa. While Prestage has said 60% of the kill will be pigs they own, the total numbers still add up to a need for more sows.

What about our existing slaughter capacity? What does the intended growth of these new plants mean for existing plants? One obvious answer is fewer Saturday kills at all plants. Long term the pressure will on plant owners to find ways to recover fixed costs for their plants or face shuttering one or more plants.

Cargill did this on the beef side with the closing of the Texas plant in the face of excess industry slaughter capacity and the relocation of feedlots back to the western mid-west region in response to rising grain basis prices for the southern plains feedlots.

Does this mean plants on the edge of the Midwest region are more at risk of closure? I don’t know the answer to this but I do know many production systems are locating new production units in locations with access to feed grains at very competitive basis prices. Everyone has gotten better at managing feed conversion in the barns and no longer does the southeast producer have an advantage in technology that led to their leadership in production in the mid to late 90’s. The Midwest systems have adapted facility and management systems that match the best of the southeast and have a very large competitive advantage when it comes to feed grain basis and access to land to utilize the stored manure.

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