Not everyone may agree, but one of the scariest things that happened recently was USDA putting a hunting party together—a taskforce of state attorneys general and a big pot of money to see if they can find someone operating non-competitively in the beef production chain.
For a change, all segments of the beef production chain have been making money at the same time. Feeders have been making some already and cow–calf operators are on the cusp of a significant payday. Packers have had a mixed bag, making some in the last year and losing some lately. But in its latest quarter, Tyson said the only segment of its meat business that had made money was beef. Chicken piled up major losses (over $300 million) and pork lost $100 million.
Right now, beef producers have the leverage in cattle numbers, our product is the best it’s ever been in quality and predictability, and consumers have kept up demand better than might have been expected in such a precarious economy. The last thing we need is the government meat axe coming down putting a monkey wrench in the works.
Tyson had already closed two chicken plants last spring and announced plans to shutter four more this fall and next year. They are smaller, older plants that need more capital improvements than Tyson thought prudent to spend. The last four account for 10% of Tyson’s production but other newer, more efficient plants can make up the difference.
Speaking of monkey wrenches, President Joe Biden and his crew sure can wreck things, all the while claiming everything is wonderful. In the latest chapter of “We can’t think straight” they continue to promote their green agenda by shutting down a million acres in Arizona, one of the states with significant mineral deposits needed for batteries for electric cars. Talking to the Weather Channel, no less, Biden reiterated his ambitions to shut down all drilling on the East Coast, West Coast and the Gulf.
He complained that the courts had stopped him from doing so, but he was working very hard to find a way around the courts—as usual. William Perry Pendley, who ran the Bureau of Land Management for former President Donald Trump, noted that those regions—the continental shelf—provide 18% of U.S. oil, employ 300,000 people and provide billions in revenue to the U.S. Treasury. We can’t survive without that supply, Pendley said. But Biden is going to try to shut it down.
Lifetime oilman Harold Hamm, the godfather of fracking and horizontal drilling, said the federal government has declared 26% of our land mass off limits to energy development, accounting for 35% of our production.
Supply and demand still rules. For oil, less supply means higher prices for gas and diesel, costing everyone. For cattle, lower supply means higher prices—for now. But that lower supply came from cows not ran on dry pastures.
Fast food is critical to the beef industry, as it accounts for a large portion of the half of the beef production that goes to away-from-home eating. We are lucky to have both ends of the spectrum covered: budget eating—ground beef at home and fast food everywhere—and fine dining in steakhouses and fancy restaurants. But fast food outlets are seeing more of their business in takeout. Remember when all fast food came from a little box building and carhops brought your hamburgers to the car? Well, many of the newest fast-food outlets are shifting to smaller buildings again because more people are going through the drive-through and eating in the car or at home.
Not-in-the-restaurant eating was shifting before but was accelerated by the pandemic. McDonald’s is reporting 90% of sales are now from the drive through and overall fast-food figures are 86%.The operators are okay with that: It’s more efficient, faster and takes less labor than dine in.
Maybe new drive-through processes and technology can get better at the right order in the bag.
As for demand, one nervous spot is China. Their GDP didn’t quite make 1% for the second quarter, a big change from the 6%, 8%, 10% in recent years. Their economy is sputtering, and exports are down. The U.S. Meat Export Federation reports beef volume exported to China was down 17% in the first half, from a billion dollars in value to $840 million, a 21% drop. Globally, volume is down 10% and value down 19%.
Keep those grills and smokers hot and the drive throughs moving. — Steve Dittmer, WLJ columnist
(Steve Dittmer is the author of the Agribusiness Freedom Foundation newsletter. Views in the column do not necessarily represent the views or opinions of WLJ or its editorial staff.)
