COVID-19 creates global disruption to animal protein chain
Rabobank analyst says plant disruption to gradually improve, smaller supplies ahead.
Ann Hess, National Hog Farmer
May 21, 2020
COVID-19 is not only impacting the animal protein sector in the United States but in most major markets around the globe, including our North American neighbors, according to Christine McCracken, executive director of Animal Protein with Rabobank.
"I look at the impacts on the Canadian swine industry who has also seen labor disruption at the plants, the same foodservice shutdowns that we've seen, and at the same time a drop in demand for their feeder pigs," McCracken says. "What's going to happen with their sow herd in the longer term and what does that mean for local supplies? Could they restructure?"
McCracken, who spoke Tuesday during a National Pork Board COVID-19 webinar, says Rabobank analysts are also seeing severe supply chain disruptions in Mexico due to the virus.
"They were already dealing with a very tough economic situation and this made it a lot worse," McCracken says. "They're suffering from a drop in oil, which is a big part of their economy as well as the loss of tourism. Their restaurants have been closed roughly the same six weeks that we've been shut and that's really hit their protein sector hard."
There has even been a shift back to some of the commodity wet markets and more of their chicken sales are shifting back to the lower cost live bird markets, she says. Mexico is also dealing with a 21% drop in the value of the peso, which has increased their cost of imported feeds.
"While their plant disruption issues haven't been as severe as they have been in the U.S., the protein sector is seeing a massive squeeze in margins," McCracken says. "They did have a pork plant burn down in the middle of all of this, which just added to the supply chain issues. The entire protein sector is really struggling and may take several months before they fully recover. It will likely limit our exports into Mexico over the next few years."
Back home, Rabobank analysts are examining how the structurally higher costs will impact the competitiveness of U.S. pork going forward.
"We've raised wages in these plants, but are we going to be able to reduce them, once all of this is over? We are also considering whether we will see a new round of government involvement in the packing industry," McCracken says. "Normally when we add new programs and regulations it also adds a lot of cost to the system. If that becomes an issue, it could make us less competitive in the long run."
McCracken says they are also evaluating long-term demand for protein and how quickly the food service sector can get back up and running and at what capacity...