USDA report: USDA releases cattle price spread report
The United States Department of Agriculture (USDA) released the highly anticipated report regarding the fire at the Tyson slaughter facility in Holcomb, Kans. last year and market disruptions caused by the COVID-19 pandemic. USDA announced their initial intent to investigate economic impacts caused by the loss of the processing capacity following the fire in August 2019. This April, USDA expanded this investigation to include the impact of COVID-19 on industry-wide packing slowdowns.
The report states, “Findings thus far do not preclude the possibility 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 investigation into potential violations under the Packers and Stockyards Act is continuing.”
Tyson fire impact
“In the weeks prior to the fire, market conditions were stable, roughly in line with seasonal trends expected in cattle and beef markets,” according to the report.
“At the time of the fire, industry estimates indicated the Holcomb plant was harvesting approximately 30,000 head of fed cattle each week, accounting for five to six percent of the weekly U.S. fed cattle slaughter totals,” the report continues.
A key observation in the report describes open packers increasing their processing volume through Saturday shifts.
The report says, “The significant Saturday production – an increase of 21,000 head – made up some of the actual weekday loss in slaughter, resulting in actual total steer and heifer slaughter numbers being only 1,000 head lower than the week leading up to the fire.”
Examining the event’s impact on price, the report shares, “During the first two weeks post-fire, boxed beef prices trended significantly higher before slowing as needs were covered and a clearer understanding of the plant’s closure on the marketplace was gained.”
“Immediately after the fire, beef buyers moved aggressively to procure sufficient product to fulfill their supply needs as the initial information available to market participants indicated the supply of boxed beef may decrease,” according to the report.
“The plant closure appeared to affect the spread between boxed beef cause and fed cattle prices. The spread between the two peaked at a then-record high of $67.17 per hundredweight (cwt) the week ending Aug. 24, while the same week in 2016-2018 averaged a spread of $27.66 per cwt, leaving a difference of $39.51 per cwt or 143 percent,” the report continues.
Live and futures cattle prices remained stable in January, following the December 2019 reopening of the Tyson Fresh Meats beef packing plant in Holcomb, Kans. closed by the fire.
The COVID-19 pandemic disrupted approximately 40 percent of the U.S. beef processing capacity and the largest difference between Choice boxed beef cutout value and dressed fed cattle prices since 2001 was recorded at just over $279 per cwt.
“The market reactions to the pandemic during the month of March were characterized by sudden changes in beef demand. Consumers increased purchases of fresh beef at grocery stores, and food service demand declines as restaurants ceased on-site dining,” according to the report.
The report continues, “Plant closures and slowdowns negatively impacted beef production and packer demand for fed cattle. This reduced demand for cattle may have contributed to lower fed cattle prices.”
“Despite the production increase, shortages of retail beef for sale in grocery stores existed as packers reportedly were not able to shift beef production and packaging quickly from food service to retail grocery products,” says the report.
The report also shares dressed fed cattle prices increased from $173 per cwt. to $189 per cwt., while fed cattle futures declined.
“One possible reason for the decline is the length and severity of the pandemic and the markets’ responses to its effects are uncertain, which increases the risk of buying futures contracts,” the report explains.
Recommendations and comments
Collectively, boxed beef and fed cattle markets acted as expected following packing facility disruptions from both events.
A recommendation in the report includes producers completing risk management training to more effectively negotiate sales with packers. Other options the report shares include USDA’s Risk Management Agency’s plans to protect against gross margin losses for fed cattle and price declines for feeder cattle.
“While we are collectively still awaiting the results of the Department of Justice’s ongoing investigation into these issues, the information in this report will be very helpful and timely to the cattle industry’s robust discussion of cattle markets and price discovery during our Summer Business Meeting in Denver next week,” says National Cattlemen’s Beef Association (NCBA) Vice President of Government Affairs Ethan Lane.
North American Meat Institute (NAMI) President and CEO Julie Anna Potts comments, “It is difficult to see how the USDA’s recommended legislative proposals would have changed the outcome of the fire or the pandemic. We will continue discussion groups with Congress and the administration to ensure there is a fair and competitive market. It is especially critical in these uncertain times for producers and packers to work together.”
Averi Hales is the editor for the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.