The U.S. pork industry could be heading for higher hog prices as processing plants come on line at an unprecedented rate with packers investing millions of dollars to satisfy the appetite of protein-hungry China, industry analysts said.

Pork packers including Seaboard Foods and Triumph Foods, who slaughter hogs and turn them into bacon, pork chops and other products, plan new or expanded plants in the next two years. This building boom could result in an extra 6 percent added to capacity by the end of 2017 compared with 2015 levels.

Another 1.8 percent of capacity will be added when Prestage Farms completes its new plant, said Steve Meyer, pork analyst at Indiana-based EMI Analytics. Prestage plans a plant that can process 10,000 pigs a day but it is still looking for a site and there is no completion date.

“Those companies have been profitable so they want to grow,” said Meyer. Average gross margins for packers jumped to $28.88 per head from 2009 to the present, compared with $20.37 from 1999 through 2008, he said. He declined to project how margins would fare in the future.

No new plants have been built in the United States since 2004 and there have never been more than two built within a 12-month period, according to Meyer.

Analysts said the industry is playing catch-up after losing several plants during the late 1990s and early 2000. The loss of capacity is causing bottlenecks, as record numbers of hogs head for slaughter in the industry that last year posted revenue at the farm level of $21 billion.

A major incentive for adding capacity is China’s rampant demand, which accounts for about a quarter of U.S. domestic production. Exports of pork to China and Hong Kong jumped 80 percent in volume in the first five months of this year from a year ago, according to the U.S. Department of Agriculture (USDA).

In total, U.S. exports of pork rose 1 percent to 2 billion pounds from January-May 2016, with a value of $2.27 billion, down 6 percent from a year ago, the USDA said.

China is the world’s biggest consumer of pork but strictly enforces a ban on the beta-agonist ractopamine – a feed additive used to plump up pigs. So much of the capacity coming onstream will be for hogs that have not been fed ractopamine.

All hogs produced by Prestage Farms are free of ractopamine and head for packers such as Smithfield Foods and Seaboard Foods, said John Prestage, whose family owns and operates North Carolina-based Prestage Farms.

The company’s new plant is likely to process pork without ractopamine, with some of that product probably for export to China, he added in an email.

Glen Taylor, a Prime Pork co-owner, said the company is working with clients in Japan in its first foray into Asia. He declined to say whether China would later be included.

“As a small plant we’ll be able to … uphold the guidelines that these foreign markets would request to provide the product,” said Taylor.

Seaboard Foods, Triumph Foods and Clemens Food Group are among other plants listed by USDA’s Food Safety and Inspection Service as eligible to export pork to China. None of them returned requests for comment.

Not all U.S. processing plants will survive the competition, however, experts said.

“We are likely to have excess slaughter capacity and therefore I think it is likely that an older or smaller hog slaughter plant or two will close as a result,” said University of Missouri economist Ron Plain.

Original article July 19, Pork Network

U.S. pork packing plant boom may boost hog prices