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3 pork processing plants coming online in next 2 years

Steve Meyer says smaller plants may close; Tyson says it 'has no intention of closing' pork plants.

Updated with comment from Tyson Foods.

At one of the sessions at the World Pork Expo in Des Moines earlier this month, veteran pork industry analyst Steve Meyer looked into the future regarding expansion of U.S. pork production to satisfy export needs, especially if Congress approves the proposed Trans Pacific Partnership trade agreement. Expanded pork production means increased hog processing capacity will be needed in the United States.

WORLD PORK EXPO: Around 25,000 hog producers and others involved in the industry attended the 2016 World Pork Expo in Des Moines last week. The annual event features the latest innovations and information, making it the place to be for keeping up with industry trends.

Three large pork processing plants are being built in the Midwest and will come online over the next two years. The new facilities could push older plants in Iowa and Nebraska to close down, says Meyer, an economist with EMI Analytics, a consulting company based at Ft. Wayne, Indiana.

Meyer thinks some of the large, older single-shift hog processing plants in the Midwest will be hard-pressed to compete with the new state-of-the-art plants. The three Iowa plants at risk of closing are at Perry, Columbus Junction and Denison. Three plants in Nebraska at Crete, Madison and Fremont are also likely to eventually close.

“Typically, those older plants have higher costs of operation, and several of them are in Iowa,” notes Meyer. “They will be under some pressure, no question.”

However, in a written statement, Caroline Ahn, manager of public relations for Tyson Foods, said the company is committed to keeping its plants open.

“We have no intention of closing any of our pork plants, including those in Madison, Nebraska; Perry, Iowa, and Louisa County (Columbus Junction), Iowa," Ahn said. "We have a strong presence in the communities we operate in and are continually reinvesting in our plants to keep them operating competitively and efficiently.”

Seaboard building in Sioux City, Iowa
Seaboard Triumph Foods is building a $264 million plant at Sioux City, Iowa, and that plant is scheduled to come online in 2017. Clemens Food Group is constructing a $256 million plant at Coldwater, Michigan, also scheduled to open for operation next year. And, Prestage Farms is looking to build a plant in Iowa. Earlier this spring, Prestage proposed building a $240 million hog processing facility in Mason City in northern Iowa. But the city council in Mason City last month rejected a financial incentive package for the proposed plant.

Initially, city leaders in Mason City welcomed the plant and the millions of dollars it would generate in taxes and millions more in jobs and economic activity. But pressure from the public and anti-development groups who feared the new plant would pollute the environment, devalue property and cause crime to increase, among other things, caused the city council to vote “no” on the proposed plant.

Prestage still plans to build a hog processing plant in Iowa
Headquartered in North Carolina, Prestage Farms officials say their company is still considering locating a new $240 million hog processing facility in Iowa. Prestage has been contacted by about 20 Iowa communities interested in being home to the project and its estimated 2,000 jobs. Ron Prestage, a leader of the family-owned company, says the company wants to select a site soon so construction can get underway and the plant can open in 2018.

Iowa State University economist Dermot Hayes says Iowa pork processing plants could have a competitive advantage over pork processing operations in other Midwest states. Iowa is located in the middle of the nation, has a large supply of hogs, has cropland that can use the manure, and Iowa produces plenty of corn to feed hogs.

There are some small hog processing plants in the Upper Midwest—in Indiana, Ohio, Nebraska that might be in bigger trouble, says Hayes, than the larger ones in Nebraska and Iowa. Iowa is the nation’s largest pork producer, with about 21 million pigs raised annually. Iowa is also the leading corn producing state, having grown 2.5 billion bushels in 2015. The Perry and Columbus Junction hog processing plants in Iowa are owned by Tyson, and the Denison plant is owned by Smithfield Farmland.

Pork processing will be quite tight this fall, pressuring hog prices
Meyer says pork processing capacity is expected to be extremely tight this fall. That will put downward pressure on hog prices as delays in processing cause animals to be held to heavier weights and overall pork supplies to get larger. He believes processors will be working at capacity for a month or more. Eventually, however, when the new plants come online, Meyer says pork producers in Iowa and elsewhere will be hard-pressed to keep pace with processing growth over the next few years.

“I don’t think we’ll have enough hogs to fill those two plants that are opening in 2017 by then, much less the plant that Prestage plans to build,” says Meyer. “We can’t bring that much pork into the marketplace without hurting prices.”

The plant at Sioux City, Iowa, and the one in Coldwater, Michigan, together will add nearly 5% capacity to U.S. pork processing capabilities, he calculates. But U.S. pork production grows less than 1% each year.

“The day the Sioux City plant opens, the hogs that come there, will be pulled in from another plant,” says Meyer. “At least at the beginning, there won’t be enough hogs produced to operate all the plants.”

Walking a tightrope to balance production growth of hog industry
Exports of U.S. pork could help increase demand, but they’ve been mostly lackluster this past year, given the stronger U.S. dollar. However, demand from China is improving. “We will be walking a tightrope to balance the growth in hog production needed to feed these processing plants, against having too much growth in pork production and hurting profitability,” says Meyer.

The three new plants are expected to begin operating with one shift, each processing 10,000 to 12,000 hogs per day, then ramping up to two shifts, depending on demand.

Where will Prestage Farms build its $240 million hog processing plant in Iowa? After the city council in Mason City rejected Prestage Farms’ proposal to build the plant there, the company notified Mason City officials on June 3 that it would not locate at Mason City, given that northern Iowa city’s strong opposition to the project.

Prestage still looking for a suitable home for its Iowa plant
Prestage Farms is a family-owned business currently operating or contracting with farmers to operate 140 confinement hog production sites in Iowa. “We’ve been doing business in Iowa for 12 years,” says Ron Prestage, a former president of the National Pork Producers Council. “We feel a little obligated. If we can find a suitable home in Iowa, we want to locate our new pork processing plant in the state.”

Prestage says his family learned some critical lessons from its Mason City proposal. The company initially believed they needed a town with 25,000 residents or more. “That’s probably not necessary,” says Prestage. This time around as they evaluate where to locate their new pork processing plant, Prestage says the company is considering smaller communities that have a good-sized workforce within 20 to 30 miles around them. “We thought early-on that we might be too big of a footprint in a small community,” he says. “But small communities better understand agriculture and the pork industry a lot better than some larger municipalities do. The smaller communities might be more welcoming.”

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