Processing Plant Problems Resulting from Hurricane Mathew Further Tighten Processing Capacity

US - [email protected] Marketing Services says disruptions in the operation of the world's largest pork processing plant have made an already tight US processing capacity situation even tighter, writes Bruce Cochrane.
calendar icon 8 November 2016
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The drop in cash hog prices over the past couple of months has exceeded the typical seasonal slide, as US hog slaughter numbers approach and exceed US processing capacity.

Tyler Fulton, the Director of Risk Management with [email protected] Marketing Services, says we've seen several weeks where numbers have matched or exceeded the 2.5 million hogs, thought to be the weekly US processing capacity.

Tyler [email protected] Marketing Services:

One of the things that has been a primary factor of the past couple of weeks is the ongoing issues that Smithfield's Tar Heel facility has been dealing with over course of the last three to four weeks or so.

Ever since Hurricane Mathew came through and resulted in a plant closure, there has now been a couple of weeks where they have not been able to fully operate that plant.

The most recent impact was last week when we saw that facility not operating for three days.

Because it is the largest packing plant in the United States, and for that matter I believe in the world, that left roughly 90 thousand hogs that were delayed in terms of slaughter and probably is resulting in some backing up of their production schedule.

It's hard to know exactly what impact that is having but it's generally not viewed to be a positive one in the medium term because at that point those hogs will need to be processed and we don't want to fall behind at a time when we're so close to packer capacity.

Mr Fulton recalls in 1998 a hog supply that exceeded processing capacity led to a collapse in live hog prices and, while a similar collapse is unlikely, given that we're so close to packer capacity, any issues in even one or two plants could make a difference.

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