The COVID-19 pandemic has disrupted the beef industry supply chain, which has led industry members to brainstorm new proposals and introduce legislation.
One such proposal for the feedlot sector is to place fed cattle in a “set-aside” program and fund the cattle’s diets for 75 days, alleviating some of the economic burden resulting from strained packing plant capacities.
The proposal is backed by BeefAlliance, a group of cattle feeding companies that represent around 25 percent of fed cattle in the U.S. The program is modeled after a Canadian program put into place after the 2004 BSE outbreak.
The organization said cattle feeders are unable to market all or a portion of their animals in a timely manner, with the backlog of market-ready cattle so high. Data from CattleFax suggests each 10 percent decline in fed cattle packing capacity results in a $4.50/cwt decline in sales price each week.
“Due to COVID-19, beef processors are being forced to curtail operating hours and output with individual plants reducing capacity between 10 percent and 100 percent because of labor force issues,” the proposal read.
CattleFax data also estimates an additional 1 million head of cattle or more will be carried into the peak summer months for cattle harvest.
The fed cattle set-aside program would “alleviate the risk of massive economic collapse in the beef cattle industry.” The proposal explains that the program would give the industry a voluntary tool which would reduce the immediate pressure to harvest fed cattle until beef processors are operating at sufficient capacities.
“Cattle can be placed on a maintenance diet, holding them back from slaughter, without impacting the animal’s health or wellbeing,” the proposal read. Processing thresholds would be established to trigger the program during processing crises such as the one being faced today.
How it works
Only cattle near slaughter weight would be eligible for the program. Cattle would be fed a maintenance ration to gain minimal weight.
The set-aside program would have an advisory committee that would make weekly recommendations on the number of fed cattle to accept into the 75-day maintenance feeding program, and the number of cattle that may be released earlier than 75 days.
Any decision to accept cattle into the program would be determined by the weekly backlog of market-ready cattle, and any decision to release cattle would be based on a return to 95 percent processing capacity based on the daily harvest total.
The program would be open once two consecutive non-holiday weeks passed with packing capacity at 85 percent of the daily harvest total capacity. Once two consecutive non-holiday weeks passed at processing 95 percent total harvest capacity, or once the program has accepted cattle for 12 months, the program will stop accepting applications.
Program slots would be allocated to each of the six regions in USDA’s Agricultural Marketing Service. If a region did not fill its allocated slots, the slots would be offered up to the other regions. Program allotments would be divided among the regions as such:
• Texas, Oklahoma, 28 percent;
• Nebraska, 21 percent;
• Kansas, 20 percent;
• Colorado, 9 percent;
• Iowa, Minnesota, 7 percent; and
• Others, 15 percent.
The payment rate would be fixed at $2.90 per head per day and is meant to offset additional feed and operating costs incurred by holding cattle back from slaughter for 75 days. The average cost of an animal in the program for 75 days would be $217.50 per head.
Every week, each producer would nominate the number of animals to enter the program. Payments are made once cattle have been in the program 75 days or when released from the program. Cattle may not be re-enrolled into the program.
The estimated cost of the program is $131-326.25 million.
Cattle must be owned by the same entity for at least 100 days and may not be traded until the end of the 75-day period or upon early release. In order to receive payment after cattle have been released, producers must provide documentation to prove ownership.
The advisory committee would establish reporting and verification protocols and inform cattle feeders of the requirements. — Anna Miller, WLJ editor