Analyst: New pork processing facilities threaten older Iowa plants

Three new large pork processing plants coming online in the Midwest over the next two years could push some older plants in Iowa and Nebraska to close, an analyst said at the World Pork Expo in Des Moines.

"We think there are some large, single-shift plants in the Midwest that will be hard pressed to compete," said Steve Meyer, vice president of EMI Analytics, an economics consulting company in Fort Wayne, Ind. "There's certainly the potential for older plants to close."

Perry, Columbus Junction and Denison are the Iowa plants at risk, Meyer said. So are plants in Crete, Madison and Fremont, in Nebraska.

"Typically, those plants [have] higher costs — and several of them are in Iowa," he said. "They will be under some pressure, no question."

Seaboard-Triumph Foods, building a $264 million plant in Sioux City, is slated to come online next year. Clemens Food Group is constructing a $256 million plant in Coldwater, also slated to open next year.

And Prestage Farms had proposed building a $240 million plant in Mason City, although that north Iowa city rejected an incentives package for the plant last month.

The North Carolina company says it's still considering locating in the state. It's been contacted by nearly 20 Iowa communities interested in being home to the project and its estimated 2,000 jobs. It's slated to open in 2018.

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Dermot Hayes, an Iowa State University economist, said Iowa plants could have a competitive advantage over processing operations in other Midwestern states, given the state's proximity, large animal supplies, cropland that can use the manure, and corn crop needed to feed them.

"There are some small plants across the Upper Midwest — Indiana, Ohio, Nebraska — that might be in bigger trouble," he said.

Iowa is the nation's largest pork producer, with about 21 million pigs raised annually, and the leading corn producer, raising 2.5 billion bushels last year.

The Perry and Columbus Junction plants are owned by Tyson, and the Denison plant is owned by Smithfield Farmland.

Mike Owen, director of Iowa Policy Project, an Iowa City research group, said the state needs to do a better job of determining whether incentives are needed for big corporations, especially if they threaten existing businesses.

"Some day, those new companies will be established companies, and they'll want to be treated right," he said.

Tina Hoffman, Iowa's Economic Development Authority spokeswoman, said state leaders weigh projects' possible effects on existing competition.

Both Seaboard-Triumph Foods and Prestage — when it was considering locating in Mason City — received incentives from the state, getting between $13 million and $14 million each.

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The state's analysis showed that Iowa and the Midwest needed more pork processing capacity — and greater choice for producers, Hoffman said.

She said the projects are expected to increase competition for Iowa hogs and boost prices for producers.

Meyer said pork processing capacity is expected to be extremely tight this fall.

"That will put pressure on hog prices" as delays in processing causes animals — and supplies — to get larger, he said. Analysts believe processors will be at capacity for a month or more.

But when the new plants come online, Meyer said pork producers in Iowa and elsewhere will be hard pressed to keep pace with processing growth over the next two years.

"I don't think we'll have enough hogs to fill those two 2017 plants by then, much less that plant" that Prestage plans, Meyer said. "We can't bring that much pork into the market" without hurting prices.

The Sioux City and Coldwater plants will add nearly 5 percent capacity to the United States' pork processing capabilities, he calculates. But U.S. pork production grows less than 1 percent each year.

"The day the Sioux City plant opens, the pigs that come there … are getting pulled from another plant," Meyer said. "At least at the beginning, there's not going to be enough pigs to operate all the plants."

Exports could help, but they've mostly been lackluster over the past year, given the strength of the U.S. dollar. Demand, though, from China is improving, Meyer said.

"We're going to be walking a tightrope to balance the growth needed to feed the plants, against having too much growth" and hurting profitability, he said.

The plants are expected to begin with one shift, processing 10,000 to 12,000 hogs a day, ramping up to two shifts, depending on demand.

Hoffman, spokeswoman for the state economic development authority, said Prestage would need to return to the state with a new application if it decides to locate in another Iowa community.

The company notified Mason City it would not locate there, given the opposition to the project.

ISU's Hayes said the real market impact of the new plants will be hard to determine until they become operational.