Market Preview: US Immigration Raids Send Shockwaves

US - Weekly U.S. Market Preview w/e 16th December, provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 16 December 2006
clock icon 5 minute read

The raid by Department of Homeland Security's Immigration and Customs Enforcement (ICE) personnel on six Swift & Company plants has dominated the news this week. Four of the plants (Greeley, CO; Grand Island, NE; Cactus, TX and Hyrum, UT) are beef plants, while two (Marshalltown, IA and Worthington, MN) are pork plants. ICE did not raid Swift's pork plant at Louisville, KY. Swift & Company is the nation's third-largest processor of live cattle and live hogs (see Figures 1 and 2).

Federally Inspected (FI) cattle slaughter fell from 130,000 on Monday (equal to week-earlier levels on Monday and Tuesday) to just 118,000 on Tuesday. They recovered to only 120,000 on Wednesday.

Hog slaughter dropped from 419,000 on Monday (an apparently "normal" run based on recent days) to just 397,000 on Tuesday, before recovering to 405,000 head on Wednesday. My latest data shows Marshalltown and Worthington having a combined capacity of 35,500 head/day, so it appears the raids took out most of Tuesday's operations before one-shift operations were restored on Wednesday. A company press release this morning says that all facilities and all shifts are operating today but that output levels will be lower "over the short term."

Negotiated hog prices were sharply lower on Tuesday in both the Iowa-Minnesota and Western Corn Belt (WCB) areas (down $1.15 and $2.54/cwt. carcass, respectively). WCB prices were lower again on Wednesday, by $1.23/cwt. carcass, but Iowa-Minnesota prices recovered slightly ($0.28).

The published numbers don't agree, but it appears that about 1,300 people were held for further questioning. It also appears that a relatively new feature of this raid was a focus on stolen identities.

Swift's management is crying foul over the raids, claiming that they violate agreements associated with its participation in the federal government's Basic Pilot worker authorization program.

These are not the first of these raids and it is a very safe bet that they will not be the last. Recall that ICE's forerunner, the Immigration and Naturalization Service, conducted raids on several beef plants during the fall of 1998. Subsequently, workers at several pork plants did not show up for work for fear that INS would expand its scrutiny. Those missing workers were critical that fall as plants were taxed to work through the large number of hogs available.

Dependence on Immigrant Labor

The packing industry runs on immigrant labor. There is nothing new about that. Upton Sinclair's 1906 book, "The Jungle," followed the trials of Lithuanian immigrant Jurgis Rudkus as he tried to embark on the American dream working in Chicago's packing plants. Rudkus was an example of virtually the entire industry at the time and Sinclair, an avowed socialist, used his plight to argue the benefits of socialism. It has been said that Sinclair "aimed at Americans' hearts" with his story, but ended up "hitting Americans' stomachs" with his tales of woeful sanitary conditions in the stockyards districts' meat plants. The book played a major role in the creation of federal meat inspection services.

The sector's dependence on immigrant labor declined in the post-war years as the major packing companies fell under a Master Labor Contract that increased wages and benefits. The development of the commercial broiler industry and its low-cost products and the entry of IBP into beef, then pork processing, put major economic pressure on the old-line packers with higher wage costs.

When those packers either went out of business or escaped the Master Contract, wages once again fell and packinghouse jobs became unattractive to much of the U.S. work force.

Enter, once again, immigrants -- this time from Mexico, Central and South America and Southeast Asia.

This week, a reporter posed this question: "Why is this an 'immigrant labor' industry?"

I think the answer is two-fold. First, packing plant work is difficult and often unpleasant. Killing and disassembling animals is just not a very pretty enterprise and many Americans simply will not do those jobs unless they are in dire straits. While our economy hasn't treated everyone extremely well, it has still been good enough to provide alternatives to jobs that do not involve cold temperatures, knives and blood. It's safe to say that packing plant jobs are probably not on the current career plans of most U.S. high school students.

Second, while these are difficult, unpleasant and low-paying jobs, relative to most U.S. jobs, they are no more difficult, no more unpleasant and higher paying relative to conditions in many immigrants' home countries. I do not offer that as a reason to exploit these workers -- they should be paid the value of what they produce. I only offer it as a statement of fact that leads many immigrants to enter the packing plant workforce. Some take great risks to do so.

The lesson of this week is both broad and specific. The broad lesson is that we as a country have to make up our collective minds about how we will deal with illegal immigrants. It's a tough question, but let's hope some politicians have some courage on this subject soon. The more specific lesson is that pork producers and packers need to consider what they will do if a) this crackdown on illegal workers continues, or b) if a workable guest worker program can be devised. Both will impact labor availability and cost and those factors should be considered when planning for 2007 and beyond.

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