Key Takeaways
- USDA’s self-imposed November 30 deadline on the Time-Limited Trial for New Swine Inspection System plants is rapidly approaching and the department has yet to establish a permanent solution or issue an extension of the current Time-Limited Trial that allows certain pork processing plants to operate at increased line speeds to facilitate greater efficiency and output while protecting and improving worker safety and food safety.
- There are six pork processing plants operating under the Time-Limited Trial in the U.S., and nearly 40% of the U.S. supply of hogs is within 100 miles of these six processing plants. Absent a permanent solution or an extension of the current Time-Limited Trial, these processors will have to reduce their operational capacity, which reduces demand for hogs, disrupts the supply chain for U.S. hog farmers and processors, and exacerbates already historically high inflation in the U.S. food supply.
- USDA’s inaction amplifies the economic uncertainty facing hog farmers at a time when profitability for farrow-to-finish hog operations is already at its worst level in more than two decades.
U.S. farmers raising hogs are currently facing the most difficult economic environment in more than 20 years – one that is expected to continue well into 2025. Data from Iowa State University’s estimated profitability for farrow-to-finish hog operations shows that returns per head reached a low of -$58 in April and are expected to average -$31 per head for the year. Based on current futures prices, the expectation is for hog family farm profits to remain mostly negative well into 2025 due to declining hog prices, persistent inflation, and stickiness in hog farm production expenses.
Expiration of Time-Limited Trial
The rapidly approaching November 30 expiration of the Time-Limited Trial for pork processing establishments in the New Swine Inspection System (NSIS) threatens to further complicate the economic uncertainty already faced by hog farmers and the processors who purchase hogs from them. Under the NSIS Time-Limited Trial, pork processors can implement different ergonomic and automation practices that improve efficiency, increase output, and ensure both worker safety and food safety, such as reducing the risk of salmonella illnesses.
There are six plants operating under the Time-Limited Trial across Illinois, Michigan, Minnesota, Nebraska, and Pennsylvania. According to USDA, these five states are among the largest pork producers and account for approximately 30% of the processing capacity for the U.S. pork industry. Importantly, of the estimated 74 million hogs in the U.S., nearly 40% are located within 100 miles of one of the affected pork processing facilities.
Despite USDA’s self-imposed and impending November 30 deadline, the Department has yet to establish a permanent solution, issue an extension of the Time-Limited Trial, or provide notice to affected pork processing plants in advance of the November 30 deadline. The lack of guidance from USDA creates a myriad of uncertainties for the processors, their employees, and the family farms that supply their plants.
Absent a permanent solution or an extension of the current Time-Limited Trials, affected pork processors will have to reduce their operational capacity, which reduces demand for hogs, delivering an economic blow to farmers who are raising hogs during the worst economic environment in more than 20 years.
Farm- and Consumer-Level Impact
Estimates from Iowa State University indicate that the expiration of the Time-Limited Trial could reduce pork processing capacity by at least 2.5% nationwide – equivalent to nearly 260,000 hogs per month in reduced output.
For consumers, lower processing capacity will result in higher prices for retail pork as supplies available at grocery stores and in the food service sector are reduced. The most recent Consumer Price Index revealed that under this administration food price inflation has topped 20% and is the highest of any administration since Jimmy Carter. For pork products specifically, Bureau of Labor Statistics data indicates that average retail prices for pork chops, bacon, and boneless ham are up 21%, 24%, and 25% respectively under this administration. Clearly, reduced processing capacity will limit supplies and put upward pressure on food prices at a time when food price inflation is stubbornly and historically high.
At the farm level, reduced plant processing capacity will lower the demand for market-ready hogs and result in lower prices received by family farmers. At a time when economic losses are currently (and projected to be) historically large for U.S. hog producers, lower processing capacity and reduced demand for hogs would further undermine their farm economic conditions. Conservative estimates suggest that the expiration of Time-Limited Trials could further erode hog farmer margins – which are already projected to be negative — by an additional $10 per head due to increased operating costs associated with reduced demand.
The impact on family hog farms is not inconsequential. Given that the average hog farm in the U.S. sells approximately 300 hogs per month, a reduction in processing capacity of 2.5%, or 260,000 head per month, is equivalent to losing 860 family hog farm operations. Losing these farms would be devastating to the families running the farm, individuals employed by the farm, local businesses supported by the farm, and the overall economic contributions these farms provide to their rural communities.
Conclusion
The Biden-Harris Administration has touted through Bidenomics and its Investing in Rural America Event Series the emphasis they are placing on rural America. Evidence of this commitment is the creation of the Meat and Poultry Processing Expansion Program and the Meat and Poultry Intermediary Lending Program, which are key components of the Administration’s plan to invest $1 billion in taxpayer dollars to:
“expand and diversify meat and poultry processing capacity, increase producer income…increase competition and enhance the resiliency of the food supply chain”.
The unfortunate reality is the Biden-Harris Administration’s inaction regarding the continuation of the Time-Limited Trial risks the expiration of an important program that will deliver an immediate and devastating blow to farmers, processors, and consumers, directly in conflict with these stated priorities.
Economic returns for hog farmers are already historically poor and USDA’s inaction in providing guidance and certainty to the industry risks making the farm economic conditions for hog farmers more dire now and well into the future. This situation is a classic example of how actions by regulators and the federal government have real consequences on the lives of everyday Americans.
