February

Cattle Inventory Declines

Crop Markets Remain Under Pressure

Recent Labor Force Conditions in Iowa

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Expected impact of Morrell plant closing on hog prices (01/21/10)
Smithfield Foods announced January 20th that it will close the Sioux City, Iowa John Morrell hog processing plant in April. The closing will directly impact the estimated 1500 employees that will lose their jobs and hundreds of other workers that provided services to the plant or to the employees.

Hog producers in the region will also be impacted, but not as dramatically as might be expected. It is never good for a seller to lose a buyer and the reduction in packer capacity is expected to have a small negative impact on the basis compared to what would have been had the plant remained open. Hog producers selling to the plant will have to find another buyer and may have higher transportation cost to ship to a more distant plant. In addition, producers that have do not have a track record with a buyer may will want to start shopping around early to determine where their hogs do best.

The closing of this plant will more closely match slaughter capacity to production on a national level. The Sioux City plant processed approximately 4 million hogs per year. That is nearly equal to the expected decrease in US commercial slaughter in 2010 compared to 2008. The smaller supplies will result in higher hog prices over all. Pork producers have experienced a devastating losses beginning in October 2007, losing money in 25 of the 27 months. Prices neared breakeven for most producers on the recent rally in hog prices at about the same time as the announcement of the plant closing. The plant will not close until April which should soften the blow for producers as hog prices typically increase seasonally to higher prices in the summer.

In addition to higher prices on smaller national supplies, individual packers may bid more aggressively to assure their plant has enough hogs to run efficiently as supplies declined depending on local supply and demand conditions. The closing will reduce demand for hogs in the region, but there are seven plants within 100 miles of Sioux City representing five different companies (Table 1). There are more plants further east and south that will also need hogs, thus there should continue to be sufficient competition for hogs in the region.

Table 1. Pork packing plants within 100 miles of the John Morrell Sioux City, Iowa Plant and their estimated daily capacity

February Update (2/9/10)
USDA updated its crop stocks and use estimates today from its World Ag. Supply and Demand Estimates report. Soybean demand continues to grow as soybean exports were raised again, another 25 million bushels to 1.4 billion. Continued Chinese demand trumped higher supplies from South America. Soybean crush was increased 10 million bushels to 1.72 billion bushels, on the strength of soybean meal exports. Ending stocks for 2009/10 were reduced to 210 million bushels, down 35 million from last month. With the weakness in recent soybean prices, USDA lowered the midpoint of their season-average price range to $9.45 per bushel, down 20 cents from last month. For corn, feed and residual demand was held steady at 5.55 billion bushels. Ethanol demand was raised 100 million bushels, to 4.3 billion, but food and seed demand was lowered 5 million bushels with weakness in corn demand through sweeteners. Corn exports were lowered 50 million bushels to 2 billion bushels. South American supplies are expected to capture a little more of the export market. These changes bring projected 2009/10 corn ending stocks to 1.719 billion bushels, down 45 million. The midpoint of USDA’s corn season-average price range remained at $3.70 per bushel.