By Jacob Bunge
Meat is piling up in U.S. cold-storage warehouses, fueled by a
surge in supplies and trade disputes that are eroding demand.
Federal data, coming as early as Monday, are expected to show a
record level of beef, pork, poultry and turkey being stockpiled in
U.S. facilities, rising above 2.5 billion pounds, according to
agricultural analysts.
U.S. consumers' appetite for meat is growing, but not fast
enough to keep up with record production of hogs and chickens. That
leaves the U.S. meat industry increasingly reliant on exports, but
Mexico and China -- among the largest foreign buyers of U.S. meat
-- have both set tariffs on U.S. pork products in response to U.S.
tariffs on steel, aluminum and other goods. U.S. hams, chops and
livers have become sharply more expensive in those markets, which
is starting to slow sales, industry officials say.
The meat industry's growing production already is filling the
specialized warehouses built to store meat and other goods. "We are
packed full," said Joe Rumsey, president of Arkansas-based Zero
Mountain Inc. The company's five storage facilities serve as way
stations for turkeys and chicken strips between processors and
retailers, holding around 250 million pounds of products on any
given day.
Growing meat stockpiles may bring down prices for meat-hungry
U.S. consumers, along with restaurants and retailers. But slowing
overseas sales and rising domestic stockpiles threaten profits for
meat processors and prices for livestock and poultry producers.
The combination of trade risk and expanding meat supplies could
result in "one of the biggest corrections we've seen in the
industry in several years," said Christine McCracken, protein
analyst at Rabobank, one of the world's largest agricultural
lenders.
Some hog farmers and pork processors are beginning to scale
back. Maschhoffs LLC, a privately held hog-farming company based in
Carlyle, Ill., has put on hold $30 million in investments planned
to expand its breeding operations and upgrade truck washes and
other biosecurity measures.
"We've got too much capacity built in this industry if we're not
going to be exporting more product," said Ken Maschhoff, the
company's chairman. He is instead considering expansion into
Eastern Europe or South America -- places where the company's hogs
perhaps can't be raised as cheaply as in the U.S. but where he said
trade policy isn't so "geopolitically charged."
Meanwhile, analysts say, pork processors recently have reduced
some hours at plants, and some plants even have turned away hogs,
Ms. McCracken said. Representatives for Smithfield Foods and JBS
SA, the two largest U.S. pork processors, had no comment. A
spokesman for Tyson Foods Inc. said the company's pork production
has matched available pig supplies and that Tyson continues to
export pork despite the tariffs.
The meat wave had been building before the trade disputes. A
string of bumper harvests in the U.S. and elsewhere slashed the
price of grain, the largest cost in raising livestock and poultry.
The strengthening U.S. economy has boosted domestic consumers'
appetite for meat, and rising incomes in Asia and Latin America
fueled increasing meat demand abroad. Farmers, ranchers and
meatpackers rushed to fill that demand, building new barns for
poultry and livestock to supply new chicken and pork plants across
the U.S. South and Midwest.
The U.S. Department of Agriculture projects the industry will
produce a record 102.7 billion pounds of meat this year.
Cold-storage warehouses are filling up as a result. The USDA
last month estimated a total 2.5 billion pounds of red meat and
poultry in U.S. cold-storage facilities as of the end of May,
running 8% above the prior year period -- and just slightly below
the record.
Exports, industry officials say, are critical to balancing out
the growing supply.
"The more you store, chances are you're going to have to export
more of it," said Altin Kalo, a commodity analyst with Steiner
Consulting Group. "Even with the tariffs, there's only a certain
amount of product you can shift into the domestic channels."
However, pork exports to China, which first implemented a 25%
tariff on U.S. pork in April and this month boosted the duty to
62%, declined by 18% over the first five months of the year.
Several times in recent weeks, the USDA has reported zero weekly
export sales of pork to the country.
Mexico, the top export market for U.S. pork, in June implemented
a 10% tariff that climbed to 20% earlier this month. While overall
exports to Mexico have been running slightly ahead of last year's
total, new weekly export sales reported for the week of July 5 came
in at their lowest level so far this year, according to the
USDA.
For cold-storage warehouse operators, the growing meat stockpile
creates opportunities. In Sioux City, Iowa, Cloverleaf Cold Storage
Co. has been upgrading its technology to help track individual
pallets' location in its 18 warehouses, which co-owner Adam Feiges
said has helped the company run its warehouses at 90% capacity,
versus 85% in the past.
Netherlands-based NewCold, which specializes in automating the
handling of frozen and refrigerated foods, opened a facility in
Tacoma, Wash., earlier this year.
"There is a general lack of cold-storage capacity," said Jonas
Swarttouw, NewCold's U.S. manager. The company is building another
facility for Idaho and is talking to various meat producers about
adding more room.
Zero Mountain Inc.'s Fort Smith, Ark., warehouse is filled to
the brink this summer, with pallets of frozen meat rising near the
40-foot-high ceilings on towering metal shelves. It is building a
new facility in Waco, Texas, and has raised wages for forklift
drivers with a gift for stacking and moving tons of frozen
meat.
"This summer's going to be increased volumes, and if we want to
capitalize on those, we have to do everything in our power to
maximize our cubic footprint," Mr. Rumsey said.
Benjamin Parkin contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
July 22, 2018 10:14 ET (14:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.