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The Market's Fine Print
Friday, June 15, 2018 7:18AM CDT

By John Harrington
DTN Livestock Analyst

Not to get too churchy and possibly spoil happy hour, but "Come, Labor On" is one of my favorite hymns. As a young boy, I can remember gleefully seeing it on the program of the early service (i.e., pre guitars, keyboards and praise choirs) and singing the old standard with great gusto:

"Come, labor on!
Who dares stand idle, on the harvest plain
While all around him waves the golden grain?
And to each servant does the Master say,
Go work today."

The work-inspiring lyrics were written by a Scottish spinster named Jane Borthwick, and growing up around a bunch of diligent farmers and ranchers, I thought she had expressed our calling and purpose just about right.

Later in life, my impression was reinforced by stories of cattle pioneers from Scotland, giants like Murdo Mackenzie, the hard-driving manager of the legendary Matador Ranch whom Theodore Roosevelt once called "the most influential cattleman in America."

Never mind the apparent conflict in stereotypes, the strange tension between penny-pinching frugality on one hand and the riskiest business model this side of Vegas. When it came to taming the West (a quest not without its shameful chapters, to be sure), few proved more successful in spurring cows and cowboys to "labor on" than the focused highlanders of Scotland.

But I digress.

When we sang this hymn at an old friend's funeral several weeks ago, the profound lyrics sorted my thoughts in a direction that was not altogether proper given the solemn occasion. With due respect to the beloved deceased (who was not a stranger to the challenges of beef and pork production), I found myself wondering about the intensifying labor shortage within the meat industry.

Come, labor on, indeed. Please!

While virtually all meat production sectors have aggressively kicked into high expansion gear over the last several years, the pool of packing house workers has clearly ebbed more than flowed. Despite the ongoing march of robotics through kill floors and cutting rooms, slaughter and processing needs seem to be steadily surpassing plant capacities.

Professional headhunters may be seen as lifesavers by HR directors at Tyson and Hormel looking for top executives and managers, but they're not very helpful in identifying a dependable source of line workers. The realities of tough physical demands, potentially dangerous chores and relatively low pay largely explain this dilemma in necessary recruitment.

In fact, the long-standing nature of this general job description explains why packers have historically relied upon unskilled immigrants who typically find it necessary to start at the bottom of the work ladder in hopes of building a more promising resume. Meat processors have always known that U.S. immigration policy is too important to be exclusively left to politicians and academics.

Hold that thought.

Last week, signs of this chronic labor shortage one again stormed into view when the new Sioux City pork plant owned by Seaboard Triumph Foods (STF) announced that the launching of a second shift (potentially adding 10,000 head per day to the facility's total capacity) would not be unveiled this summer as previously advertised, but would rather be "indefinitely" postponed. Why? STF simply can't find, train and retain enough workers.

Indeed, the scuttlebutt among well-placed chain-speed monitors has long been that labor problems at times make it difficult for both STF and the Clemens Food Group (operating a relatively new facility in Coldwater, Michigan) to even fully staff first shifts.

Don't think for a minute that beef processors are free from worry when it comes to mating labor resources with slaughter needs and plant capacity. Anxiety in their sector has been awkwardly building through the decade.

On one hand, the number of cattle slaughter facilities has been falling away faster than friendly U.S. trading partners. No fewer than nine processing plants have closed since the start of 2013, representing a daily slaughter capacity of 14,850 head.

On the other hand, herd size has been ambitiously growing over the last four years with the total cattle population surging from 88.5 million to 94.4 million.

Slaughtering more with less daily shackle space has only been accomplished through the managerial finesse of scheduling and manning large Saturday kills. But how long can packers demand so many weekly hours from workers without accelerating the already breakneck pace of turnover? I think it's a legitimate question.

None of these headlines and windshield surveys can be playing very well in the front office of Prestage Farms where executives are trying to put the final touches on yet another new pork plant scheduled to open this fall near Eagle Grove, Iowa. On paper, this additional facility is designed to process 10,000 finished hogs daily and employ as many 1,000 people.

Unless some mad but brilliant embryologist at Iowa State quickly perfects the cloning of line workers, Prestage stands to be the latest victim of idle capacity, limited not by inadequate hog numbers but by the industry's chronic dearth of labor.

Dr. Ron Prestage, company president and professional veterinarian, doesn't have to be told that a trained and reliable workforce won't just bubble from a test tube or suddenly appear out of thin air. Realistically, he has indicated that his new plant may simply have to be prepared to raise wages (e.g., maybe from a standard base of $10-$12 per hour for line workers to $14-$15 per hour) to attract the right quantity and quality of employees.

In other words, Prestage Farms is already considering the likelihood of being forced to steal from the already short payrolls of their competitors. And there's nothing wrong with that. In fact, given the realities of the situation, it's just good business.

Yet what may solve Prestage's labor problems could easily compound worker shortages at Tyson and STF and JBS. In truth, the spark of higher wages could spread like a flash fire throughout the entire meat processing sector

Such a scenario seems like it fell right out of my Econ 101 textbook: "Tight labor supplies ultimately trigger higher wages necessary to motivate more would-be workers into the job market." I don't have to turn the page to know what follows. Higher wages stoke the general furnace of inflation, which in turn forces interest rates higher.

Needless to say, all of this goes far in explaining why the Federal Reserve increased a key interest rate again Wednesday, boosting the federal funds rate for the second time this year (i.e., into a range between 1.75% and 2%), which will trigger higher rates on credit cards, home equity lines and other kinds of borrowing.

So, not only will meat processors keep struggling to assemble and maintain an efficient workforce for the unforeseeable future, operating costs will relentlessly plow higher, both in terms of wages and interest.

But even more frustrating, some of the basic lessons of Econ 101 may be fraught with exceptions and contingencies. For example, many U.S. citizens may simply be beyond recruitment for such work, almost regardless of the hour wage. A host of other conditions such as location, qualify of life, job safety and career advancement may simply be seen as deal-breakers.

Successfully growing the labor to keep pace with expanding numbers of cattle, chicken and hogs virtually mandates that packers and the meat industry in general (i.e., higher labor and interest charges will eventually be passed on to consumers, negatively affecting the potential of both domestic and export demand for all meat products) play a critical role in reforming the thorny and emotional challenge of immigration and foreign workers.

While President Donald Trump and his closest supporters still love to talk about a Mexican-funded "wall," even the president has expressed desire for a "beautiful door" in the wall, one that would allow much-needed workers and help fill certain labor pools that are dangerously dry. We need to help lower the unhelpful rhetoric and move the immigration mess in the direction of a "come-labor-on" solution.

Agriculture can no longer afford to pretend that it doesn't have a dime in this critical game. Truth is, it's got a sackful.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

(AG)


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