The U.S. beef industry is no stranger to crises. From the market-distorting beef price freeze under President Richard Nixon to its first BSE case in December 2003, the industry has successfully rebounded from whatever challenge it has faced. Each crisis has proven how durable and dedicated everyone in the beef chain is, from rancher to retailer and restaurateur.
These same qualities have helped the industry navigate the greatest-ever challenge in its history, the COVID-19 pandemic and virtual shutdown of the country for two months. It might be premature to say the crisis is now behind the industry. But July begins with a cautious sense of optimism that the markets are returning to normal, i.e., pre-shutdown.
The fate of the feeder cattle and live cattle markets rests on the ability of packers to process fed cattle on a timely basis and offer an orderly flow of beef to end users at a reasonable price. All that blew up from late March to mid-May, as I described in last month’s column. But a minor miracle has occurred that has brought sighs of relief from feedlots to retail meat departments.
Remember that weekly slaughter levels reached a record low of 438,614 head the week ended May 2? This was 64 percent of available capacity, if one uses a maximum capacity of 685,000 head per week. Weekly slaughter levels improved each full week in May. But questions remained as to how long it would take packers to operate at full capacity again.
The miracle is that they achieved that in June. The slaughter total the week before last was an estimated 680,000 head, 99.3 percent of maximum capacity. It achieved that level by packers processing an estimated 82,000 head on the Saturday. This was a record Saturday kill for a non-holiday week.
Packers appear to have done a remarkable job in protecting their workers from COVID-19-related illnesses and making them feel comfortable about returning to work. The dramatic decline in capacity utilization in April was largely due to worker absenteeism and only slightly due to slower chain speeds in plants. Now plants appear to be fully staffed and one can only hope they remain that way the rest of the year.
The dramatic increase in slaughter levels and the huge year-over-year increase in weekly carcass weights mean that weekly beef production from mid-June rose above year-ago levels. This contributed to a collapse in wholesale beef prices that will fully restore retailers’ beef margins and allow them to feature beef earlier and more aggressively than was forecast only a month ago.
This augurs well for cattle feeders being able to reduce their backlog of market-ready cattle faster than expected. The front-end supply (cattle on feed 150 days or more) attained its seasonal peak by July 1, a month later than normal, says Andrew Gottschalk of HedgersEdge.com. The good news is that supplies will trend lower into the fourth quarter at a faster rate than normal. The bad news is that this decline will begin from the largest beginning month’s supply on record, approximately 824,000 more than on July 1 than a year ago, he says.
This means kills will have to remain as large as possible for at least the next three months. Saturday kills will be the critical factor. Questions remain as to whether packers will be able to run kills above 70,000 head consistently over a sustained period. One barometer is to examine Saturday kill levels following the Aug. 9, 2019 fire at Tyson’s Holcomb, KS, plant that shut down the plant until nearly the end of the year. The Saturday kill on Aug. 10 was 46,553 head. The kills the next 15 regular production weeks averaged 69,377 head. They ranged from a low of 58,992 head to a then-record high of 79,648 head.
Circumstances however were different then to what they are now. The COVID-19 pandemic was several months away from emerging and retail and foodservice beef demand was extremely strong. So packers had a powerful incentive to produce as much beef as possible. They also had a full and healthy workforce to draw on for larger Saturday kills than normal.
Some demand destruction occurred this May and June as retail beef prices hit record monthly highs. As noted, the higher beef production will bring those prices down in July. The comprehensive cutout (cuts, grinds and trim) the week before last was down 4.3 percent on the same week last year. Wholesale beef prices are far more attractive to end users than they were a month ago. All in the industry can only hope they stay that way. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
