Pork Processing
Revised November, 2021.
Production Background
When it comes to pork processing, one of the inherent problems is that there is not a great deal of difference between the best yielding hog and a low yielding hog, especially when compared to beef. Live animals are differentiated by breed, of which there are about a dozen main breeds in the United States. Another aspect of differentiation is weight, which can range from 240 to 290 pounds on a live basis. Muscling, loin eye size, marbling in the loin eye and in the principal ham muscles are also important determinants of quality. However, it is the percentage of lean meat as compared to bone and fat that determines the final price when hogs are sold to major packers.
The cost of acquiring hogs typically comprises 70 percent of the cost of the slaughter-processing company. This cost runs higher for niche hogs such as organic. The kill and cut costs for a large, well-capitalized multi-plant operation employing two shifts range from $10 to $12 per hog. Smaller plant costs are in the mid-teens. Most custom slaughter operations charge about $25 per pig broken into sub-primals with some a little higher, depending on the volume. Additionally, most packing plants have some sort of scheme to pay the producer for those edible items that he/she does not take. Normally these prices are at the low end of the commodity range for the items. All custom operations keep the "drop" or byproducts, which are worth $3 to about $8 per head, depending whether the pig is skinned.
Another major challenge is that everybody wants to sell the loin, which represents just less than 20 percent of the carcass. There is really no romance in the hocks, spare ribs, back ribs or any shoulder meat that may be sold as fresh meat. Thus, with only about one-third of the pig being sold as fresh meat, the balance is further processed primarily into ham, bacon and sausage.
These products may include fresh pork sausage (or breakfast sausage) and fresh Italian sausage; emulsion products such as hot dogs and luncheon meat; coarse ground dinner sausage like kielbasa and bratwurst (fresh or cooked); and cured products such as bacon, ham and Canadian bacon. These processed products really "gain value" after a brand and logo are created and the brand in the marketplace has some brand recognition and then brand loyalty. It is difficult to reach the levels of Hormel and Oscar Mayer who have brand equity. It not only takes good products to have at least brand loyalty, but it takes time and money - lots of it. Promotional budgets are needed for all forms of advertising, point-of-purchase materials, sales incentives and so on. Typically it costs $0.05 per pound for these activities.
Most small pork processing operations hardly devote any monies toward sales and marketing. Certainly not enough to warrant any difference, because there are virtually no budget allocations for marketing; the amount allocated for the general category have been used in direct sales efforts.
Developing a Niche
How does a smaller independent pork producer survive in what seems to be a harsh environment? The simple answer is to seek out a niche that the "big boys" cannot tread. That may be in a small developing export market in which customers are looking for specialized customer service. It may be a breed-specific pig like the Berkshire or Duroc, which has some inherent excellent marbling qualities. Another possibility may be to work with upscale, small specialty retailers where quality and service are paramount.
Developing a "signature" cut or product that is unique in the marketplace is another way to create a market niche. One can even create a niche in the use of product packaging. For example, one could create a smaller package size for an entire line of products that would appeal to seniors.
These are just a few examples of how additional value can be created, leading to increased returns for the producer in spite of higher processing costs.
Pork Processor Slaughter Capacity, January 2010
| Rank | Company | Daily Capacity |
|---|---|---|
| 1 | Smithfield Foods | 113,200 |
| 2 | Tyson Foods | 67,600 |
| 3 | JBS Swift | 39,500 |
| 4 | Hormel Foods Corp. | 37,000 |
| 5 | Cargill Meat Solutions | 29,500 |
| 6 | Premium Standard | 17,100 |
| 7 | Indiana Packers | 17,000 |
| 8 | Seaboard | 16,500 |
| 9 | Triumph Foods | 16,000 |
| 10 | Hatfield | 10,000 |
Source
Meat & Poultry Facts 2017, American Meat Institute, Washington, D.C.
Marketing
- Investment in Downstream Publicly Traded Firms as a Vertical Integration Strategy to Increase Returns and Reduce Annual Volatility for Pork Producers, Purdue Agricultural Economics Report, 2003 - The objective of this research was to investigate the potential of a value-added portfolio consisting of investments of pork production and publicly traded value-added processing companies that will reduce the annual volatility of returns and improve annual returns relative to investing strictly in pork production.
- Maximizing Carcass Utilization in Niche Pork Companies, Pork Niche Market Working Group and the Value Chain Partnerships for a Sustainable Agriculture Project, 2007 - This study reviewed the supply of natural and organic pork available from niche pork companies.
- Meat Processor Survey Results- Developing Producer & Small Processor Owned Meat Marketing Enterprises, The North Central Initiative for Small Farm Profitability, 2004 - This survey indicates small meat processors are interested in collaborating with other processors and producers.
Processing/Manufacturing
- American Association of Meat Processors (AAMP) - Representing more than 1,300 small- and medium-sized meat, poultry and food businesses.
- Beef & Pork Whole Animal Buying Guide, Iowa State University Extension - This consumer-oriented guide explains how to buy a whole or half portion of a pork and beef processed at a meat locker. It includes marketing terms and information on storage and handling, meat inspections, weight and common retail meat cuts.
- Guide to Designing a Small Red Meat Plant, Iowa State University - This guide offers insight and formulas for planning the layout of a small-scale locker-type red-meat processing plant.
- Implementing a Recall Program for Small Processors, National Pork Board and American Meat Science Association - This research-based fact sheet outlines how to implement a product recall program.
- Packing House Byproducts, Iowa State University - Large packing plants have found markets for the "last squeal" of the pig. How can smaller operations compete without the quantity of animals? This paper looks at small and medium-size beef and pork slaughterhouses and the alternatives for the major by-product categories.
