Persistent and growing processing backlogs at pork processing facilities mean producers urgently need aid to offset the costs of hog euthanization along with additional direct assistance payments or many more may be forced out of business, officials with the National Pork Producers Council (NPPC) emphasized in a briefing to discuss economic conditions across the sector.

Already, pork producers are facing a $4.7 billion annual revenue hit industrywide, according to an analysis by Dr. Steve Meyer, an economist with Kerns & Associates, who joined NPPC officials on the call. Meyer's analysis drew from lean hog futures price data between March 1 and July 10.

"As we entered 2020, hog farmers were finally looking at a profitable year, only to have COVID-19 turn the industry on its head. Hog farmers are now looking at $5 billion in losses - or $37 per hog - relative to what they expected for 2020 before the COVID-19 crisis began," Meyer detailed.

"Producers have had to euthanize a number of animals… there's no way that producers want to do this, it's the last thing they want to do," Meyer stressed.

Depopulation aid urgently needed as backlogs continue to grow

Pork producers' needs are twofold, the NPPC officials said. The immediate concern is aid to offset costs associated with depopulation of hogs unable to be processed, followed by additional direct payments to compensate for the loss of market for pork caused by shifts in food demand caused by COVID-19.

USDA's Coronavirus Food Assistance Program (CFAP) package provides some support for producers does not fully compensate for the depth of the hardship being faced across the pork sector, NPPC officials stressed. "Our producers are really hurting," said NPPC President Howard AV Roth.

Producers "appreciate what Congress and the administration have done, said NPPC Vice President and Counsel for Global Government Affairs Nick Giordano, "but it's not enough." Hog farmers "really need a lifeline and they need it quickly," he stressed.

More than a million hogs already euthanized

"Somewhere around a million pigs, maybe a little more" have already been euthanized this year due to backlogs linked to processing plant capacity shortfalls, Meyer said. In the initial months of the COVID-19 pandemic, scores of plants reduced capacity or shuttered completely due to infections among plant workers. Plants have now reopened, but are still operating slightly below full capacity due to social distancing and other measures implemented to protect workers, the combination of which is leading to a growing backlog of animals unable to be processed.

The current backlog of hogs stands at 1.1 million, but could grow to 1.6 million by the end of August, Meyer detailed. The backlog could hit 2.5 million by year-end, and assuming processing capacity remains near the current 95% level. "If COVID prompts additional plant disruptions - a real possibility - the number of hogs backed-up on farms will swell precipitously," he stressed.

RELIEF Act would address depopulation costs, more direct payments also needed

To address the depopulation issue, NPPC is urging passage of the Responding to Epidemic Losses and Investing in the Economic Future (RELIEF) for Producers Act of 2020. The measure is meant to compensate livestock producers for disposal costs associated with euthanizing animals unable due to pandemic related processing backlogs.

The legislation would compensate producers based on the national average market value of euthanized or disposed livestock between March 1 and the date of enactment. Reimbursements would be calculated for a 30-day period beginning with the date of initial depopulation and would cover 85% of the value of losses. The value of losses for each subsequent 30-day period would be reduced by 10%.

The bill would also modify the Commodity Credit Corporation (CCC) Charter Act to allow USDA to tap CCC funds for the removal and disposal of livestock and poultry due to supply chain disruptions during a public health emergency. It would also give the secretary authority to provide assistance to ag processing plants via the CCC during public health emergencies to ensure there is a market for US livestock.

Some states have put programs in place to compensate producers for euthanized animals, but NPPC is continuing to push for a national-level program.

Besides depopulation costs, the bill also includes $300 million for animal health and surveillance laboratories, many of which have been forced to shift their existing resources to bolster private and public COVID-19 testing capacity amid the pandemic.

The legislation was introduced by Sens. Chuck Grassley (R-Iowa), Joni Ernst (R-Iowa), Thom Tillis (R-N.C.), Richard Burr (R-N.C.) and Jim Inhofe (R-Okla.). House Agriculture Committee Chairman Collin Peterson (D-Minn.) has also voiced support for similar changes to the CCC charter, something officials emphasized during the call.

"Chairman Peterson was a champion of House legislation that includes compensation for euthanized and donated hogs as well as additional direct payments for hog farmers without payment restrictions, said Roth. "We need Congress to come together quickly on a final COVID relief bill that includes these provisions."

Without prompt relief, already challenging conditions could deteriorate further. "I've not heard much about bankruptcy so far, but I know they're coming based on what I know about production and the kind of economic losses we're facing," Meyer remarked.

NPPC officials declined to speculate on the total price tag for relief required by the sector. Giordano said the group supports "open-ended" aid like that provided under the RELIEF Act, given the uncertainty about market conditions in the months ahead.

"We really don't know what the what the final damage is going to be, and we understand having said that, nobody's going to be made whole," Giordano explained. "We're just trying to keep as many producers as possible in business."

CFAP direct payments have been helpful, officials said, but the practical effect has been limited both due to the limited amount of funding available and payment limitations on those funds, said NPPC CEO Neil Dierks. "We still think there's more need out there and there are limitations that have basically capped the ability of some producers to get full advantage" from the program, he explained.

As for the timeline for Congress to pass another relief bill that includes more aid for hog producers, Giordano said he is hopeful the Senate moves legislation "in the next couple of weeks," followed by House action, with President Donald Trump signing it into law "by the early part of August."

Even with an aid package addressing depopulation and market loss, "we're going to lose hog farmers," Giordano acknowledged, saying the only question is how many. He stressed NPPC's priority at this point "is to keep as many [producers] in business as possible."

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.