Pig farmers were expecting at least two more years of good prices, but
the United States Senate may have planted a time bomb on the industry,
says University of Missouri agricultural economist Ron Plain.
“This could get us a real disaster before the year’s over,” said Plain
about a recent addition to the U.S. Senate’s version of the farm bill.
The Senate and the House of Representatives, which passed its version
of the farm bill last fall, now must negotiate a compromise bill to
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consider for passage into law.
Plain said if this provision becomes part of the law, a number of old
packing plants could close, including the giant Sioux Falls, South
Dakota plant that many prairie pig producers ship to.
“If that plant does get shut down, we’ll face a situation this fall in
having prices like we had in 1998.”
The provision is called the Johnson amendment, after Tim Johnson, the
South Dakota senator who introduced it to the Senate bill. It bans
packers from owning livestock for more than 14 days before they
slaughter the animals.
With up to one in four market hogs produced in packer-owned farms, that
could lead to a lot of corporate restructuring, Plain said.
Some packers may sell their hog farms or spin them off as separate
corporations. But other companies may decide that their aging,
inefficient plants are not worth either move.
“We worry a great deal that the company may decide the best way to go
is just to shut down the plant,” said Plain.
The Sioux Falls plant is a major processor, killing 16,000 pigs per
day, but it is also a century old. It probably isn’t worth much and
doesn’t have a bright future, Plain said.
Recently Smithfield Foods, which owns the Sioux Falls plant, ran
newspaper advertisements in South Dakota warning that it might shut the
plant if the Johnson amendment becomes law. Johnson wasn’t
intimidated by the warning and helped shepherd his amendment through.
If that plant or others close, a crisis could erupt in the fourth
quarter of this year, Plain said. Hog production is still seasonal,
with a bulge in the production of market hogs in the last three months
of every year.
A shortfall in packer capacity, known as the “shackle space problem,”
caused the 1998 price meltdown. That could happen again, Plain said.
“Anything that causes us to fall very short on kill capacity could
leave us in a crunch and reproduce those disastrously low prices we had
in 1998,” he said.
Plain doubts the Johnson amendment will serve the purpose many hog
farmers want.
Some major companies, such as Smithfield, may decide not to sell their
hog farms. They may instead ditch their packing plants.
“A lot of the advocates envisioned that they would sell off the hogs,
but I don’t think those firms will choose to do that,” he said about
three major packer-producers.
By hanging onto the hog farms, these companies will be able to continue
their drive for integrated production, in which quality is controlled
all the way from genetics at birth to the grocery store.
The law bans packers from owning or controlling hog production, but it
doesn’t stop hog producers from controlling packers, Plain said.
If Smithfield spun off its packing plant division, it could keep its
farms, its meat marketers and all other parts of its organization. It
could make a long-term contract with its present packing plants to
process all of its pigs, as they do now, and have the packing plants
hand over the cut meat to Smithfield.
“It is simply a toll packer for you,” said Plain.
These companies aren’t going to easily give up control of the meat from
the barn to the plate.
Wholesalers, grocery stores and consumers are all demanding more
information about where their meat came from and how it was produced.
“There’s enormous pressure to not go back to where we were 30 years
ago, when all we had was anonymous meat,” said Plain.
“The market forces are too great to go back.”
So while the U.S. Senate may believe it’s helping farmers, it may end
up instead leaving a significant share of pig production in the hands
of corporations and destroy the prices that farmers receive, Plain said.
While the Senate version of the farm bill contains the Johnson
amendment, the House of Representatives version does not. The two
houses must draft a compromise bill before voting it into law so the
Johnson amendment won’t necessarily be part of the final version.
