The COVID-19 pandemic has struck at the heart of the U.S. meat and livestock industry. Plummeting slaughter levels mean that pigs are being euthanized and cattle are backing up inside and outside feedlots. The result is an imminent meat shortage, which would have been unthinkable only eight weeks ago.
Meatpacking plants have always been vital to the livestock industry’s ability to turn animals into consumer-ready meat. Never in the industry’s long history has this been truer than today. The pandemic’s consequences have forced plant closures but, even worse, an almost halving of available capacity in both beef and pork plants. This is due to enforced distancing of workers inside plants and much slower chain speeds, and growing absenteeism.
Beef and pork production thus plummeted in April, with beef production the third week of April down 25 percent on the same week last year, and pork production down 15 percent. Reductions were expected to be even more severe last week. Such shrinking production led John Tyson, chairman of Tyson Foods, to publicly declare that the food chain is breaking. Tyson is the U.S.’ largest meat and poultry company so his remarks were especially ominous.
The tragedy for the beef industry is that production is being pummeled just when the grilling season starts and the Memorial Day holiday looms. May and June are normally the best two beef demand months of the year. Such prospects this year have already been crushed. The industry is not producing enough beef to fulfill retailers’ needs. This will mean lost beef sales just when they normally would be increasing.
Compounding the lost sales is that daily and weekly boxed beef cutout values have soared due to the drastic reduction in production. The Choice cutout the week before last advanced a record $28 per cwt from the prior week, with the spot market Choice cutout up $54.38 per cwt. The cutout shattered the $300-per-cwt barrier last Monday.
The result is that wholesale beef prices are historically high relative to pork and chicken. So not only will retailers this month have spaces in their meat cases that should have been filled with beef, those spaces will be filled with pork and chicken. This will surely continue the rest of the year, as the economy remains in deep recession and as many Americans struggle to buy food.
The entire beef complex from ranch to retail relies on predictability to operate as efficiently as possible. But the pandemic has thrown predictability out the window. No one knows when daily social and working patterns in the U.S. will return to something approaching normal or pre-virus. It might be many months before beef processing plants are fully staffed again and Americans start eating out again in sizeable numbers. So cattle supply and beef demand patterns might not become predictable again for upwards of a year.
The pandemic’s impact on cattle producers has already been brutal. It began with the collapse in feeder and live cattle futures contracts from mid-February to the first week of April. This weakness spilled over in the cash market as those with hedged cattle sold at lower prices to take advantage of the huge spread between cash and futures prices.
The futures’ collapse meant it was impossible to hedge cattle being placed on feed. So March placements declined 22 percent year on year. April placements were likely down 25 percent on last year and May and June placements might similarly decline. Cattle feeders’ inability to hedge means that cattle will remain out on grass as long as possible. So that green stuff becomes a precious commodity for cow-calf and stocker operators.
However, these cattle will have to be placed at some point. Placements might be bunched in the late summer-early fall, which would eventually lead to a bulge in marketings from late in 2021’s first quarter on. Should March through June placements decline 20 percent year on year, this would mean a shortfall of 1.535 million head.
Another consequence is that cattle out on grass are also likely to be extremely heavy going into feedlots. They will have to be on feed a certain number of days to achieve the required level of grading. So they will go to packing plants at record heavy levels. Carcass weights might be record heavy on a weekly basis for the rest of the year and throughout 2021.
In the meantime, margins for cattle producers have turned extremely negative. That is why the beef industry faces its biggest loss since the country’s first BSE case in December 2003. One study puts the loss just for cattle producers at $13.6 billion. With that in mind, it seems that a $5.1 billion payment as part of USDA’s Coronavirus Food Assistance Program is woefully inadequate. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
