Recently, I was scrolling through a genealogy app my church runs. I came across my great-great-great grandfather’s journal during his journey from Denmark to America, where he oversaw over 400 people on board the James Nesmith. It starts out pretty lengthy and full of excitement, but after few days into the trip, the first death of the voyage occurred. His entry went into detail about the person and the service. A few days later, another death. This entry isn’t as long but still carries detail. After a month into the voyage, there is death nearly every day. The journal entries mention “a child was buried” as if it were a daily chore. As I was reading this journal, I felt his emotional charge that was reduced to overall gloom, and then recharged again as he set toward his new life in America.
The last month has been a roller coaster of emotions for those in the cattle business. That’s going to happen when the futures markets are headline driven, algorithmically induced and politically susceptible. In the heat of everything, I’ve seen emotionally charged social media posts and comments that make me feel like we are more divided than ever. I’ve seen names, including my own, drug through the mud because the popular thing wasn’t said. In most of these cases, it’s been for saying there isn’t enough fact to build the story. Missing context leaves doubt that’s interpreted in many ways. Facts must stay facts. It seems like that was the case in the recent news out of Lexington, NE, where Tyson Foods shared plans to close one of their largest processing facilities. Over 3,200 people in a town of 11,200 will be without a job by late January. Furthermore, the company’s plant in Amarillo, TX, plans to cut one of two shifts, eliminating 1,700 jobs.
According to several sources, between the two locations, 7-9% of national beef processing capacity will be impacted. After a month of mostly downward movements by the board, this news drove an additional limit down trading day. However, cash markets across the country have been holding their own. In an interesting way to advertise prices, marketers have advertised the cattle as how much of a premium the cattle brought over what the futures were quoting that day. It’s a quick way to realize how disconnected the board is from the current market.
The news of Tyson’s plant closing begs a lot of questions that we don’t have answers to. Currently, there’s a lot of speculation about what is happening and if the newly built Sustainable Beef plant located an hour’s drive away played an impact. While it may have played a role, it wasn’t the main driver. There are rumors out there about that plant right now, too. Tyson’s balance sheet isn’t pretty this year. They lost over $400 million last year and are reporting heavier losses this year. I also doubt that this decision was lightly made.
My own assumption is that Tyson had been evaluating ways to utilize their infrastructure more efficiently and reduce overhead, forecasting the future cattle inventory, and made decisions to stay alive. Closing the 35-year-old plant with trained employees at one of the nation’s largest facilities, then offering to relocate these employees to other plants is a huge expenditure and task. This decision wasn’t thought of yesterday and made today. They’re scheming, but we don’t know all the facts at the moment. The timing, though, doesn’t help and only compounds frustration across the marketplace. Especially while boxed beef has remained in heavy demand and actually saw an uptick in price.
Several months ago, I told my wife that as soon as the consumer hears about record beef prices is when we will deal with some adversity. The boat is rocking, but the industry hasn’t taken on any water. We just have to wait out this storm. The cow herd isn’t there to support enough hooks and the processors are starting to adjust. All the data being released now shows no signs of herd rebuilding, and with no Mexican cattle in the system right now, and the combined U.S. and Canadian cow herds being small, I don’t think this will be the last plant to shut its doors. Everyone is in a reaction mode right now. That’s what we need to remind ourselves of. Daily record highs aren’t a sustainable pace. We are seeing markets in motion with the added volatility we’ve been talking about for years. With increased limits on the board, it can move a lot—and fast!
While reading my grandfather’s journal, it reminds me of the struggle we sometimes feel—from excitement to gloom. The excitement will return. I’m also reminded of real struggles. The cash market is still strong. We’ve got an amazing cow herd that transforms grass into protein and produces offspring with genetic makeup that can convert, grow and grade. We have a position in this market that will outlast short-term corrections. We also have an administration and population that is watching every move the packers make right now. There’s a microscope on them now, and they know it. We still have it pretty good. Remember to pause before judgment and give thanks when we can. I hope you had a blessed Thanksgiving as we go into the holiday season. God bless our WLJ family, and thank you for the support over the last 103 years! — LOGAN IPSEN
