The cattle markets were blindsided last week after there was a fire at Tyson’s Holcomb, KS plant. The plant contributed 6,000 head a day to the nation’s beef processing capacity. This was the last thing the cattle markets needed. At the blink of an eye the beef processing industry lost 6 percent of its fed cattle packing capacity, which was already running at near full capacity.
Sources have told us that the fire started in the box room from a welding spark during normal maintenance; electrical and hydraulic systems were damaged. Obviously work stopped and the plant was evacuated. Speculation is running wild about when this plant will be back online; we hear anywhere from six weeks to two months.
Tyson’s first move after the fire was to announce that their 3,000 or so employees will continue to receive paychecks while the plant is rebuilt. Tyson recognized their most important asset is the people who operate their plant. Could you imagine losing a workforce in Holcomb, KS and putting the staff back together?
At the first available trading platform, the futures markets traders panicked and sold off hard. For two days, all cattle futures contracts were down the limit and locked up; no trade. August fed futures traded down to $100.20, October was at $98.50. cash trade was at $105-107 in the north and $103-105 in the Southern Plains. It appears that the damage has already been done.
Now what? Cattle feeders need a place to deliver finished cattle, and the market opportunities for the packing industry are very good now. Tyson will send cattle to other packing plants and max out capacity in other locations and rumors are they will run a double shift on Saturdays. They have long-term obligations and will need to fill orders. Beef demand is on fire and I’m sure the industry will find a way to process more cattle. Last week market observers were expecting weekly slaughter estimates to be around 510,000 head. Many market observers report that the industry needs to process 520,000 fed steers and heifers to stay current with fed inventory. Carcass weights last week were 8 lbs. below the same week last year.
Cattle markets had been relatively steady through the summer and showing signs they may get stronger going forward. August is when fed cattle supplies are typically at their largest. Cattle feeders have done a fantastic job maintaining cattle weights to prevent overloading the system with too much beef.
Monday morning feeder cattle auctions were nervous, for good reason. The WLJ field staff met in Cheyenne, WY, Sunday, the day before Western Video’s Cheyenne sale. There was a lot of speculation over what would happen Monday morning when the markets opened. Speculation turned to fact instantly on the fed and feeder cattle futures. Cash markets were nervous. Some consigners pulled yearlings from the sale to let the hype blow over and some charged on and sold into a market that was $3-5 lower. The bulk of the steers sold between $130 and $140. Some high-quality heavy yearlings sold over $154.
Tuesday was calf day and a lot of steer calves were trading between $150-160 for 550-lb. weight, while 650 lbs. were $5 lower, but the ultra-light steers (400-450 lbs.) were trading much higher with some selling for $210 or more. Heifer calves were a full $10 lower than steer mates. There should be less market pressure on fall-delivered calves than on immediate-delivery yearlings. I would have to say that at this point everyone has figured out their alternative marketing plans and we’ll get through this fall without much damage. Remember beef demand is excellent.
Beef prices have rallied on the news with the Choice beef cutout moving up to $232.34—nearly
$6 in one day. The Select beef moved right along with it and is trading at $205.92. The Choice-Select spread is at a record $26.42, which means there are a lot of calf feds in the slaughter mix, but it also shows outstanding demand for high quality beef.
The packing industry has a big job ahead of it over the next few months. We must maintain reasonable slaughter levels over the next few months on fed steers and heifers. In another two months we’ll start to see the typical fall cull cow run begin, but I would think this episode will just be a bump in the road by then. Packers have a lot of incentive to keep chain speeds moving. The latest packer margin index showed packers earning $297.55 per head, and I’m told that is a conservative number. Patience will prevail. — PETE CROW
