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Readily Available Fed Cattle, Packing Plant Closures Affect the Producers

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
When the tightest part of the supply chain is pinched, it creates a tremendous problem for the other side of the bottle/industry. (DTN illustration by Nick Scalise)

If there's one thing we in the cattle industry prayed for regarding the COVID-19 headache, besides the safety of our families, it was that packing plants wouldn't shut down. Cattlemen can endure a lot, but the crippling effects the novel coronavirus threw the market into has pushed every sector of the industry into a new level of anxiousness and fear. I'm not sharing this with you all to stem more fear, but to share some realities and create awareness.

There's no denying that the cattle industry is complex, but how the supply chain flows is relatively simple.

In its simplest breakdown, cow-calf operations breed and raise calves, and feedlots purchase those calves and feed them to a finished weight. Upon finishing the cattle, they sell them to the packers who ultimately process the cattle and prepare them for the retail sector, which sells the meat to the consumers.

In a perfect world, life is simple -- cattlemen raise cattle, feeders feed cattle, packers slaughter cattle and consumers demand high quality beef. But, as you can see in the illustration with this column -- when the tightest part of the supply chain is pinched, it creates a tremendous problem for the other side of the bottle.

How will cow-calf producers market their calves if there isn't a secure end destination for them? It's not like you can really ask feedlot managers to step up to the plate and buy those calves if they themselves don't have a secure, viable market to sell later their finished steers.

And, for the consumer -- the side of the market that is coming with dollars in hand and willingness to spend -- there is no product. Saying sorry isn't enough for those frustrated, hungry consumers.

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The ramifications of limiting production or suspending operations all together has both short-term and long-term effects, both of which carry great consequences. Some of the short-term concern is that feedlots will have to send their cattle to different plants. Those feedlots will have to manage their feed supplies and contemplate when and how to buy more cattle since feedlots are full. Meanwhile, the board is merely impossible to hedge on and packers aren't buying.

Long-term problems get even more complex. Spring is a crucial season for fat cattle. It's essential that prices climb before the dog days of summer arise -- when fat cattle become both abundant and cheap -- and it's crucial that the market stay as current as possible to help with dwindling prices.

Given that our economy is shut down and citizens are asked to stay at home and practice social distancing, there is so much unknown. However, for the sake of weighing out different realities, let's looks at a couple scenarios.

First, let's say the economy opens back up in four to six weeks, Americans get their stimulus checks and the government opens commerce and whether it be a prime cut steak or a hot hamburger with extra fries, Americans head to their local restaurant and support local business more than ever. This ultimately helps beef demand as both restaurants and retail stores stock up on meat to meet the need of their consumers.

Thankfully (for this scenario) our cold storage supply is stocked. The latest cold storage report reported that, "total red meat supplies in freezers were up 3% from the previous month and up 5% from last year. Total pounds of beef in freezers were up 1% from the previous month and up 4% from last year. Frozen pork supplies were up 6% from the previous month and up 7% from last year. Stocks of pork bellies were up 5% from last month and up 38% from last year." Total beef stocks in all warehouses totaled 490,981,000 pounds. Total pork stocks in all warehouses totaled 661,660,000 pounds. Total frozen red meat stocks in all warehouses totaled 1,195,414,000 pounds -- including beef, pork, veal and lamb.

Click here to access latest cold storage report: https://downloads.usda.library.cornell.edu/…

Now, let's paint another possibility -- the worst-case scenario. Government officials fear that reopening the country will only spread the coronavirus and health officials deem it necessary that everything remains in lockdown throughout the summer. Packing plants get put under more pressure and some end up cutting shifts -- and some plants close until further notice. While all of this is happening, fat cattle continue to sit in feedlots, backing up the supply chain as more fat cattle become available. And it's not that packers don't want to process the cattle in this scenario -- it's that they can't.

This problem ripples into every sector of the industry and creates tremendous complications. Seeing that the feedlots are full, cow-calf producers are left looking for more grass for their calves, as there isn't any room in the feedlots. Feeders are losing money as the cattle they are sitting on are maxed out, but are left with no other option but to continue to feed them. Meanwhile, the consumers continue to pay for high-priced meat that's only available in the stores half of the time.

No one knows when the COVID-19 whirlwind will be over -- that's why the board is volatile and the cash market is in shambles. But, when looking at the beef industry, pinching the narrowest part of the supply chain is our worst nightmare.

The industry needs to process right around 600,000 head a week in order to keep up with showlists and keep the supply chain flowing.

For both the beef industry and for our economy, that bottleneck needs to widen -- and soon.

ShayLe Stewart can be reached at shayle.stewart@dtn.com

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ShayLe Stewart