Four months after the Tyson plant fire shuttered 5 percent of the country’s fed cattle packing capacity, the plant will reopen and begin accepting cattle again. Out of the ashes also come some painful lessons.
On Monday, Nov. 18, Tyson Foods, Inc. announced that the reconstruction efforts on the Holcomb, KS beef plant is near completion. The announcement said the plant is expected to open the first week of December and is expected to be back up to full operational level by the first week of January.
“We recognize the disruption the fire caused for our suppliers and our customers and are more than pleased to announce we are in the final stages of reconstruction,” Steve Stouffer, Tyson Fresh Meats president, said in the company’s announcement.
“Our team is ready to begin the process of ramping back up, recognizing that there will be testing and adjustments over the first few weeks to ensure equipment functionality while maintaining our commitment to team member safety and food safety.”
This reopening would come four months after the plant was closed following the Aug. 9 fire earlier this year. The fire damaged the plant’s hydraulic and electrical systems that were necessary in central harvest floor and cooler areas activities.
The plant represented about 5 percent of the nation’s weekly fed cattle slaughter capacity. Cattle that might have normally gone to the Holcomb plant were diverted to other Tyson plants, and packers in general pressed larger Saturday kills to make up for the lost capacity. This effort actually led to more fed cattle being killed during the period compared to the same time last year when the slaughter capacity was not reduced.
The Tyson plant fire shocked the cattle and beef markets into some wild moves. Most notable was the massive spike in Choice cutout values, which peaked at $241.74 on Wednesday, Aug. 21. Following that, the Choice cutout fell as fast as it had surged, bottoming at $211.09 on Monday, Oct. 7.
Since then, the Choice cutout has recovered, reaching $242.34 on Wednesday Nov. 13. We are now in a seasonally normal downtrend of cutout prices, though impressive domestic demand has given prices more buoyancy than they usually have this time of year.
At the same time that Choice cutouts shot up, fear over the loss of 5 percent of the nation’s slaughter capacity helped drive fed cattle prices lower. The 5-Area Weekly Weighted steer average bottomed in the second week of September with live prices down in the upper $90s.
Since then, fed cattle prices have more than recovered from their level prior to the fire and have been toying with being higher than last year’s prices.
The combination of panicked-inflated cutouts and lower fed cattle prices was record packer margins. This spawned suspicion from some quarters of the beef industry that packers were taking advantage or had manipulated prices. Shortly after the fire and as a result of these suspicions, USDA Secretary Sonny Purdue announced that the USDA’s Packers and Stockyards Division would launch an investigation “to determine if there is any evidence of price manipulation, collusion, restrictions of competition or other unfair practices.”
What market shocks teach
Jim Robb, senior agricultural economist for the Livestock Marketing Information Center, spoke in no uncertain terms about the Tyson fire and its fallout during his presentation at the 2019 Range Beef Cow Symposium, held last week in Mitchell, NE.
“What happened with the fire in early August?” he asked the audience rhetorically.
“Retailers and restaurateurs panicked—it wasn’t the packer gouging the system. [Retailers and restaurateurs] were heading into the last holiday season and they bid up the wholesale market overnight. Is that the packer taking advantage of people? No! That’s stupid retailers.”
He also laid blame on Tyson for how it handled the release of information.
“Let’s be honest, Tyson did a crappy job. Reporters, please quote me. I’m serious—they did a terrible job with that story.”
He pointed out that Tyson should have known better that uncertainty “reverberates through the system” and that they “could have made it better for everybody if they had been a little more up front and a little more cognizant of what’s going on.”
“The reality is, if you want to blame somebody that started this, blame the retailers,” Robb told the audience. “Then blame the packers. Then blame people like me. Then blame the media. Blame the hype. But we didn’t know at that time if we had a plant that was out of commission for a year or two weeks or two years. Or, if that plant was fully out of commission.”
Towards the end of his talk, Robb ranked the Tyson plant alongside the Dairy Termination Program of the 1980s, the attacks of Sept. 11, 2001, and the 2003 BSE case as the worst market shocks of his career. Still, he said the industry learned a lot from this particular shock.
“We learned that futures markets react quickly and you won’t have a hedgeable opportunity. Even though it looks like you ought to be able to make money, the futures are going to be so dynamic and cause such shifts for people to delay marketings and do whatever that it’s going to be really hard and it’s going to be really volatile.
“What else did we learn? We learned that if we’re in cow-calf country and you have forage and you have patience, you can outlast it.” — Kerry Halladay, WLJ editor