Last fall, USDA announced it would begin investigating the economic fallout of a fire at a Tyson Fresh Meats processing facility in Holcomb, KS. The plant processes around 6 percent of slaughter cattle in the U.S., so the impacts and damages were substantial.
After the fire, processing capacity was severely disrupted and cash market fed cattle prices dropped, while the price of wholesale beef rose. Just as things began getting back on track earlier this year, the COVID-19 pandemic occurred and similarly impacted the cattle and beef markets on a larger scale.
USDA expanded their market investigation in April to include the impact of the pandemic on plant shutdowns. Although slaughter capacity has slowly returned to near-normal levels, the backlog of unharvested cattle and retail demand for beef has continued to impact the markets.
Report findings
USDA released its preliminary report, Boxed Beef and Fed Cattle Price Spread Investigation, in late July. The report details the disruption of two separate events, the Tyson plant fire in August which caused the facility to shut down for four months, and the COVID-19 pandemic.
“The purpose of the investigation is to examine whether any regulated entities violated the
Packers and Stockyards Act by taking advantage of the situation through price manipulation,
collusion, restrictions of competition, or other unfair practices,” the report read.
However, this released report does not examine violations of the Packers and Stockyards Act, as the investigation is still ongoing. Instead, the report analyzes market conditions before and after the fallout of each event. The Agricultural Marketing Service (AMS) does make several policy recommendations to improve market conditions, though they are unrelated to the fallout from the fire and pandemic.
The report made several key findings about the Tyson fire:
• The largest spread between dressed fed cattle price and the Choice boxed beef cutout value was recorded at $67.17/cwt after the plant fire;
• Packers increased their processing volume by increasing Saturday slaughter shifts;
• The timing of the Holcomb fire coincided with the seasonal increase of beef demand leading up to Labor Day;
• Futures prices for fed cattle and fed cattle market prices decreased significantly after the fire; and
• The number and percentage of negotiated cash sales of fed cattle dropped after the fire.
Key impacts from the COVID-19 pandemic:
• The largest spread between dressed fed cattle price and the Choice boxed beef cutout was over $279/cwt the second week of May, the highest ever recorded;
• Market reactions during March were a result of sudden increased consumer demand for beef;
• Large numbers of plant workers contracted COVID-19 in April and May, which led to significant beef supply disruptions. USDA notes this caused a reduced demand in cattle, which could have contributed to lower fed cattle prices; and
• The economy gradually began to open in May and plant shutdowns eased. Boxed beef prices began to decrease and fed cattle prices started to increase.
Policy recommendations
USDA makes a series of policy recommendations concerning the discussion of a highly concentrated meatpacking sector.
“At the core of many of these discussions is the desire by many market participants for improved price discovery, reinvigorated competition, and a more transparent relationship between the prices for live cattle and the resulting products,” the report read.
AMS noted an underlying concern about price discovery is the declining number of participants in the negotiated cash market. The agency said a reduction in non-reporting through Livestock Mandatory Reporting would improve price discovery, as well as reshuffling reporting regions.
AMS said it has explored a 14-day slaughter scheduled delivery requirement, but is hesitant on proposals such as the 50/14 proposal, as it may have unintended consequences. The agency recommended minimum purchases be tied to regional reporting abilities.
The report also mentioned reducing the burden of smaller meat processors and updating the Packers and Stockyards Act to offset impacts of operating in a concentrated industry.
“It is important that any proposals aimed at addressing these complex issues and others associated with the market disruptions caused by the Holcomb fire and COVID-19 receive careful consideration and thorough vetting given their potential to affect everyone whose livelihood depends on the sale of cattle, beef, or related products,” USDA noted.
Moving forward
“Findings thus far do not preclude the possibility that individual entities or groups of entities violated the Packers and Stockyards Act during the aftermath of the Tyson Holcomb fire and the COVID-19 pandemic,” the report concluded.
“In its analysis of the effects of the fire and the pandemic, USDA found no wrongdoing and confirms the disruption in the beef markets was due to devastating and unprecedented events,” said North American Meat Institute President and CEO Julie Anna Potts. “It is difficult to see how the USDA’s recommended legislative proposals would have changed the outcome of the fire or the pandemic.”
USDA said it has been working with the Department of Justice (DOJ) regarding allegations of anticompetitive practices. The DOJ has also launched its own investigation into the meatpacking industry for price fixation, but has yet to release any details.
“Should USDA find a violation of the Packers and Stockyards Act, it is authorized to report the violation to DOJ for prosecution,” the report said. — Anna Miller, WLJ editor
