U.S. pork packing plant boom may boost hog prices

Seaboard

18/07/2016 20:17

* Three new, two revamped structures to come on line by 2018 
    * Healthy packer profit, China demand fuel expansion 
    * First U.S. pork packing plants to be built since 2004 
    * Industry interest in ractopamine-free pork to serve China 
 
    By Theopolis Waters 
    CHICAGO, July 18 (Reuters) - The U.S. pork industry could be 
heading for higher hog prices as  processing plants come on line 
at an unprecedented rate with packers investing millions of 
dollars to satisfy the appetite of protein-hungry China, 
industry analysts said. 
    Pork packers including Seaboard Foods  SEB.A  and Triumph 
Foods, who slaughter hogs and turn them into bacon, pork chops 
and other products, plan new or expanded plants in the next two 
years. This building boom could result in an extra 6 percent 
added to capacity by the end of 2017 compared with 2015 levels. 
    Another 1.8 percent of capacity will be added when Prestage 
Farms completes its new plant, said Steve Meyer, pork analyst at 
Indiana-based EMI Analytics. Prestage plans a plant that can 
process 10,000 pigs a day but it is still looking for a site and 
there is no completion date. 
    "Those companies have been profitable so they want to grow," 
said Meyer. Average gross margins for packers jumped to $28.88 
per head from 2009 to the present, compared with $20.37 from 
1999 through 2008, he said. He declined to project how margins 
would fare in the future. 
    No new plants have been built in the United States since 
2004 and there have never been more than two built within a 
12-month period, according to Meyer. 
    Analysts said the industry is playing catch-up after losing 
several plants during the late 1990s and early 2000. The loss of 
capacity is causing bottlenecks, as record numbers of hogs head 
for slaughter in the industry that last year posted revenue at 
the farm level of $21 billion. 
    A major incentive for adding capacity is China's rampant 
demand, which accounts for about a quarter of U.S. domestic 
production. Exports of pork to China and Hong Kong jumped 80 
percent in volume in the first five months of this year from a 
year ago, according to the U.S. Department of Agriculture 
(USDA). 
    In total, U.S. exports of pork rose 1 percent to 2 billion 
pounds from January-May 2016, with a value of $2.27 billion, 
down 6 percent from a year ago, the USDA said. 
    China is the world's biggest consumer of pork but strictly 
enforces a ban on the beta-agonist ractopamine - a feed additive 
used to plump up pigs. So much of the capacity coming onstream 
will be for hogs that have not been fed ractopamine. 
    All hogs produced by Prestage Farms are free of ractopamine 
and head for packers such as Smithfield Foods  SFII.UL  and 
Seaboard Foods, said John Prestage, whose family owns and 
operates North Carolina-based Prestage Farms. 
    The company's new plant is likely to process pork without 
ractopamine, with some of that product probably for export to 
China, he added in an email. 
    Glen Taylor, a Prime Pork co-owner, said the company is 
working with clients in Japan in its first foray into Asia. He  
declined to say whether China would later be included. 
    "As a small plant we'll be able to ... uphold the guidelines 
that these foreign markets would request to provide the 
product," said Taylor. 
    Seaboard Foods, Triumph Foods and Clemens Food Group are 
among other plants listed by USDA's Food Safety and Inspection 
Service as eligible to export pork to China. None of them 
returned requests for comment. 
    Not all U.S. processing plants will survive the competition, 
however, experts said.  
    "We are likely to have excess slaughter capacity and 
therefore I think it is likely that an older or smaller hog 
slaughter plant or two will close as a result," said University 
of Missouri economist Ron Plain. 
 
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Graphic-U.S. hog slaughter rate grows even as plants close    http://tmsnrt.rs/28Yr2W1 
FACTBOX-Profits, China exports ignite U.S. hog packing plant 
boom     urn:newsml:reuters.com:*:nL1N1A11QX 
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 (Editing by Jo Winterbottom and Matthew Lewis) 
 ((Theopolis.Waters@thomsonreuters.com)(+ 1 312 408-8725)) 
 
Keywords: USA HOGS/PROCESSING