That strange odor detected around pork processing plants this fall has nothing to do with the standard blood, guts and excrement that goes with the territory. Nor does it waft from value-adding kitchens filled with sizzling bacon and honey-cured hams.
Rather, that smoky smell of burning oil and grease billows from stressed gears and machinery, chain speed hardware struggling to keep pace with the dangerous marriage of record market hog numbers and irresistibly fat packer margins. Between 2017's blistering pace of herd expansion and processors netting $35 to $40 per head (e.g., a daily bank deposit close to $18.4 million), it's a simple combination of need and greed.
Even casual monitors of weekly hog slaughter know that overtime started extremely early this year. Prior to current production and tonnage plans, triple-digit Saturday kills scheduled before Labor Day were extremely rare. Furthermore, bloated weekend slaughters of 200,000 head or more (not counting holiday-shortened weeks) were virtually unheard of outside the late October/early December framework.
Yet the necessity (again need and greed) of late-week clean-up this year has caused Saturday packing house work to average over 150,000 since mid-August. Such a demanding and unforgiving time-clock is no doubt taking a heavy toll on both men and machines.
For example, although Monday's kill originally was estimated at 456,000 head, mechanical problems at no fewer than four major plants caused the total to be revised down to 442,000. Could this be just a rare stroke of bad luck, like a herd of black cats crossing the path of a marching army, or breaking a mirror while walking under a ladder with an open umbrella? Maybe.
But I wonder if it's not a sign of structural stress, one that will repeat and/or worsen as the breakneck pace of hog slaughter accelerates through the end of the year. Of course, the danger of such a possibility is that unavoidable demands of plant maintenance and labor relations could compromise timely marketing and finishing floor currentness.
Some may logically counter this worry by pointing to the power and burgeoning capacity of shiny new plants at Sioux City, Iowa, and Coldwater, Michigan. Surely these youthful engines will go far in shouldering the burden of fourth quarter slaughter.
While it's a point well taken, at least two qualifiers should guard against extreme confidence. First, these newbie plants have understandably encountered start-up glitches, definite speed bumps along the on-ramp toward full production. My sources tell me that both facilities together are still not killing more than 10,000 head (i.e., a little less than full capacity advertised for just one).
Second, for hog producers managing margins, it's not enough to just ensure a sufficient number of working links in the chain (as important as that basic reality is). Maximum competition between old and new plants remains absolutely crucial in minimizing late-year equity loss for farrowing barns and finishing floors.
The best-case scenario calls for new players to iron out kinks ASAP, while the old varsity checks its profit-drool at least enough to avoid chronic mechanical and labor problems.
For more from John see www.feelofthemarket.com
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